Originally Posted by Rain Man
I've heard that a person shouldn't be in more than 3 or 4 mutual funds, because the more you have, the less likely you are to beat the market. Of course, I presume you're also less likely to underperform, too, but that's never what I read about.
I do the online brokerage, because I'm not convinced that a broker can pick a mutual fund better than I can. The data is pretty much all out there.
I also have a fair number of individual stocks. I've been using a system that I like to pick them, though I can't really tell if I'm doing better or worse than I'm doing in my mutual funds. It's kind of fun to follow them, though, and I like to think that it's my chance to pick a skyrocketing star and get rich. That's not going to happen when you own mutual funds.
The crash of '08-'10 was painful on the stock side, but that was more bad luck than anything. I had been buying more bank and finance stocks recently because I liked the dividends they were paying. I had a couple of small bank stocks that got bought by big banks right before everything blew up, and all my finance stocks got destroyed. So I guess buying individual stocks takes a little more steel than buying mutual funds.
If the professionals have a hard time beating the market, your chances (with divided attention, gotta work right?) are even worse. I'm not saying it can't be done but on a consistent basis it probably isn't going to happen.
If you are running your own money, you'd probably be much better off with buying ETFs (a combination of sectors and indices) and going with a tactical rebalancing/reweighting semiannually to annuallly.
When you're picking ETFs, you eliminate the selection risk of being in the right sector but picking the wrong stock. You also greatly reduce the fees you'll pay on your mutual funds. In addition, the ETFs allow you to be more nimble and institute a stronger sell discipline.
Most average joes can pick a good stock. They have a hard time knowing when to sell losers or ring the register.
Also, in terms of mutual fund portfolios, it's ok to have more than 4 funds as long as they aren't duplicating each other. It depends on what the funds are (market cap, domestic/international, concentrated/diversified), what their strategies are (value, growth, momentum, fundamental), and the fees.