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Time To Take Inventory of Your Investments

- Alan Lavine and Gail Liberman

How many mutual funds do you own?

If you're like many investors you've probably picked up a few extra mutual funds over the years based on their hot performance. But owning too many funds can be as bad as owning too few funds.

Say you own just one growth stock fund. You probably did well up until 2000. But the last three years, you gave back about 30 percent of your gains.

Say you own 10 funds. The funds probably own many of the same stocks. Or their performance goes in all different directions. You probably did just as well or worse than the S&P 500 index.

So how many funds should you own? Doug Fabian, editor of Maverick Advisor (www.fabian.com), Huntington Beach, Calif., says that the number of funds you own should depend on how much you have to invest. For example:

· If you have less than $50,000 to invest, stick with one or two funds.

· If you have $50,000 to $100,000 to invest, stick with two to three funds.

· With $100,000 to $500,000 to invest, own four or five funds.

· If you have over $500,000 to invest, own six to eight funds.

Every investor is different. Nevertheless, Fabian's guidelines can help you get rid of excess funds.

The type of funds you own should depend on your age, the time you have to invest and your investment comfort level. The younger you are, the more you can invest in stock funds, which are risky, because you have more time to make back your losses.

But if you're approaching retirement, you need to be more cautious. Stocks have lost 30 percent since Jan. 1, 2000. You need to make 42 percent on stocks to make back those losses. It could take several years. So if you plan to retire in five or 10 years, you may not be enough time.

Younger investors who have less than $50,000 to invest might consider a well-managed stock fund as a long-term investment. Morningstar Inc., Chicago, rates the Vanguard Index 500 fund as the core stock fund holding for anyone's portfolio.

Older investors with less than $50,000 might consider a balanced fund that owns both stocks and bonds. The Dodge & Cox Balanced Fund is rated one of the best by Morningstar.

If you have over $50,000, it is best to own different types of funds. You should own a growth stock fund and a fund that invests in undervalued stocks. Growth and value stocks take turns outperforming each other. When you combine the two, the value of your investment fluctuates less.

Solid growth and value funds include the Barron Asset Fund for growth and the Oakmark Fund for value, Morningstar reports.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

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