This week's response comes from:

Lou Stanasolovich

Louis P. Stanasolovich, CFP is Founder, CEO, and President of Legend Financial Advisors, Inc. (Legend), a fee-only financial advisory firm with its headquarters located in Pittsburgh, Pennsylvania.  Legend provides Wealth Advisory Services, including Comprehensive Financial Planning and Investment Management, to affluent and wealthy individuals as well as business entities.  Mr. Stanasolovich has been selected by Worth Magazine as one of “The 250 Best Financial Advisors in America” five successive times, by Medical Economics as one of “The 150 Best Financial Advisors in America for Doctors” three consecutive times and most recently by Mutual Funds magazine as one of “The 100 Great Financial Planners in America” in its October, 2001 issue.  His investment process has been profiled in Barron’s, Business Week, Investment Advisor, Investment News, Morningstar Investor, USA Today, Worth, and on the Internet publication TheStreet.com.  He can be reached via e-mail at legend@legend-financial.com, via the website - www.legend-financial.com, or at (888) 236-5960.

Is there a recommended number of funds a person should own?

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Is there a recommended number of funds a person should own?

from Judy

Q: Do you know how many mutual funds the average American invests in? Also, is there a recommended number of funds a person should own to be adequately diversified?

A: (Lou) The average American invests in about six mutual funds.  Unfortunately, they are generally not diversified.  To obtain true diversification and to minimize volatility, try this approach.  Include high quality income bonds and/or funds, domestic equities (including small and large value and growth), real estate funds and at least two or more hedge type investments (hedge-like mutual funds will work). 

International funds have not been much of a diversification tool over the past 5 years therefore, we do not recommend them.  As to the allocation, we recommend investing into each of the major categories which we mentioned above and equally-weighting those categories.  In other words, the amount invested into domestic equities, high quality bonds and real estate should be equal.  This will reduce your volatility greatly.  At my firm, we call this concept Lower Volatility Investing.

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.