Model Mutual Fund Portfolio
Regarding “Model Mutual Fund and ETF Portfolios: Value and Small Stocks Impact Returns” by James B. Cloonan in the March 2012 AAII Journal: Near the end of the article, there is a recommendation to hold a minimum of four different mutual funds. This recommendation runs counter to research by Richard A. Ferri, who points out in “The Power of Passive Investing” (John Wiley & Sons, 2010) that “The more bets that an investor makes on actively managed funds the lower their probability for outperforming the markets.”
The second point I would make is that the Vanguard 500 Index fund (VFINX) is an inappropriate benchmark, considering that the portfolio holds five mid-cap funds and two small-cap funds. While not a perfect benchmark, the Vanguard Total Stock Market Index fund (VTSMX) would be an improvement.
James Cloonan responds:
To read more, please become an AAII member or CLICK HERE.