Avoid Duplicating Stocks In Mutual Funds

by Alan Lavine and Gail Liberman

If you own both individual stocks and mutual funds, better
check to make sure there is no overlap.

Say you own a few hundred shares of General Electric, Exxon Mobil, Citigroup and Merck. It's likely your large company stock fund also owns these same stocks. These companies are the largest holdings of both large company value and large company growth stock funds. It could prove risky to own so many shares of the same stock. Perhaps it's a better idea to own a mutual fund that holds other stocks instead. You could invest, for example, in a fund that owns mid-size and small company stocks.

Or, you could have several mutual funds that own the same shares. A couple of years ago, a friend showed me his growth stock funds. Almost all had the same holdings! When the market crashed in 2000, he lost his shirt. That's because all his funds owned the same tech stocks.

Unfortunately, in down markets you can get killed if you are not properly diversified.

So how do you solve this problem? Your broker or financial planner can do an analysis of your fund holdings. He or she will give you a breakdown of the holdings and industries. This way, you can see if there is too much overlap.

Do-it-yourself investors can go to T. Rowe Price's website at www.troweprice.com. There, you'll find a service called "Morningstar Portfolio X-ray." You can enter your funds and get a breakdown of industries and stock holdings. You also get information on your mix of assets, stock sector, type, world regions, fees, expenses and investment styles. Plus, there is a portfolio tracker and watch list. The service is free. You don't have to invest in T. Rowe Price's funds. The only drawback: The information on the stock holdings is a few months out of date. But it's not too bad.

You even can see how your investments would perform in a bear market. It's a good idea to evaluate your funds' performance every three months. Then you can decide to take profits and reinvest the proceeds in underperforming investments. Or, you can decide to add more to your stock or stock funds. 

Stay informed. Other helpful fund websites include Morningstar.com, Fundsinteractive.com, Allaboutfunds.com, CBSmarketwatch.com, Fundalarm.com and Bloomberg.com. You get up-to-date mutual fund, stock, bond and economic news.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

More articles by Al and Gail can be found here.