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Am I sufficiently diversified?

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Am I sufficiently diversified?

from Stefan

Q: My current employer provides forty different mutual fund options for their 401k account. I currently invest 30% in an SP500 index fund, 30% in a concentrated growth fund, 20% in the company stock fund, and 20% in a large cap value index fund. My Roth IRA is distributed as follows: 30% STEKX (large cap tech), 30% KDSAX (small cap value), 30% KDHAX (large cap value). 

I am 26 years old and have only been investing for a few years so the amount in the 401K is about $15,000 and in the IRA $7,000. Am I too diversified, not enough or doing okay? Also, since I'm currently maxing out the amounts I can distribute to these retirement accounts, I'm planning on opening an individual account and plan on investing about $1,000 a month.

What should I invest in? I was thinking PRHSX (large cap health).

A: (Lou) Congratulations - you've made a great start by saving so much. Many times by just sticking with a long term savings plan you'll be successful regardless of the investments you pick, unless you concentrate your investment too much. 

We don't usually like single stock employer investment accounts unless you are getting a discount (typically 15%) and plan on selling the stock as soon as eligible. The other type of concentrated funds are sector funds, such as the healthcare fund you mentioned. These periodically tend to underperform for long periods of time, then most investors dump them in just before they take off. 

We suggest sticking to major investment styles or major asset classes. For example, you did not mention international funds, real estate or any type of hedge investment [non-correlated (non-similar) pattern of movement to domestic equity investments].

What fund companies have managers participating in hedge funds?

from Michael

A: (Paul) Regarding which mutual fund companies have managers participating in hedge funds, there are too many to mention.  

If you're asking the question because you believe that might jeopardizes your investment in a mutual fund within the family, that's highly unlikely.  Because of full disclosure, if you read the prospectus or call the funds' investor services, they will update you on the funds' hedge position.  

Hedge funds are volatile and do carry additional risk, but can be rewarding under certain market conditions.

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