AAII Journal > November 2002
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Your Mutual Fund Portfolio: Choosing the Level of Complexity

Your Mutual Fund Portfolio: Choosing The Level Of Complexity Splash image
How simple or intricate you make your mutual fund portfolio comes down to your investor profile: the amount of time and interest you want to spend managing it, your investment knowledge, and the total amount of dollars you'll be investing. There are, however, some investment constants—no matter what, your portfolio of mutual funds should be:
  • Diversified,
  • Meet your financial goals, and
  • Match your risk tolerance.
Your asset allocation—how much you put into the various asset categories—addresses these financial concerns. What fund types you select and how many funds you invest in to populate the asset categories is driven by your investor profile.

You also need to make sure that, when you think of your mutual fund portfolio, you are considering all of your funds: those held in both your taxable and tax-sheltered accounts, including 401(k) plans, 403(b) plans, IRAs, Keoghs, Roth IRAs, etc. When you view all of your mutual fund holdings as one all-encompassing mutual fund portfolio, it becomes clear that you need not replicate your total mutual fund portfolio allocation in every individual account.

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Graduated Complexity

Even with those constants in mind, there are many different "levels" of mutual fund portfolios, ranging from a basic, bare minimum portfolio to one that is very complex.

Three mutual fund portfolio levels are illustrated in Table 1. They are not meant to be discrete portfolios, but rather should be viewed as a continuum, with Level I as a realistic minimum and Level III as a practical limit.

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