How many funds are needed to create a diversified portfolio? While there is no absolute answer, let’s explore a range of diversification strategies — from a one-fund to a 12-fund portfolio. An important secondary goal when building portfolios is to keep things relatively simple, so the construction and management of the portfolio is not overwhelming.
Speaking of simplicity — index-based mutual funds and exchange-traded funds allow a client to invest in a potentially wide variety of stocks or bonds or REITs, etc. This type of simplicity is fantastic. But it can also create the illusion of being fully diversified, which is a simplistic oversight.
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