If you could own just four mutual funds, which would they be?
Today's investors rarely adhere to the "less is more" philosophy of the minimalist architect Mies van der Rohe. Unsure of which funds to choose, they buy as many as they can afford from whatever performance and recommendation lists they come across.
This strength-in-numbers approach can produce a mix that over time becomes either Frankenstein's monster or a long row of identical twins.
You shouldn't sleep better just because you own more funds than your neighbor. In part, owning too many will likely mean you can't keep track.
We asked some fund experts to pick four funds different enough from each other to constitute a diversified portfolio.
This is minimalist investing.
"Most investors are attracted to one area in the marketplace in a given cycle and buy three or even four funds in that particular marketplace," said Jim Lowell, editor of the independent Fidelity Investor newsletter in Watertown, Mass.
After 10 years it isn't uncommon to find investors with 25 funds so closely correlated that they behave just as a portfolio of four different funds would, Lowell said.
"It is silly to have a lot of funds because it means too much duplication," said Thurman Smith, editor of the Equity Fund Outlook in Boston.
Owning 25 funds is "crazy," Smith said, with eight funds or fewer much more realistic because it still permits you to cover most categories and styles.
"For something like this you'd want to stick with the tried and true," said Christine Benz, director of mutual fund analysis for Morningstar Inc. in Chicago. "My first choice for someone wanting to keep things streamlined is a target-date fund, in which you choose a fund that matches the date you plan to retire."
Andrew Leckey is a Tribune Media Services columnist.Copyright © 2014, The Baltimore Sun