'I have $1 million in 33 funds, is that too many?'

@Money May 30, 2012: 6:10 AM ET
When it comes to mutual funds investing, more doesn't necessarily mean better.

When it comes to mutual funds investing, more doesn't necessarily mean better.

(MONEY Magazine) -- I'm 82, my wife is 74 and our financial adviser has our portfolio of just under $1 million invested in 33 mutual funds. Do you think that's too many?-- E.W.

Yes, that's way too many.

Unless your adviser sees some value in you having more mutual funds than Baskin Robbins has ice cream flavors, I'm hard-pressed to come up with any good reason why you should spread your savings among anywhere near 33 funds.

Theoretically, one could argue that owning nearly three dozen funds might improve your portfolio's performance by broadening its diversification. That's one reason so many investors these days are stuffing their portfolios with all sorts of dubious investments, ranging from long-short funds to inverse funds to social media ETFs.

But when it comes to choosing investments, more doesn't necessarily mean better.

You can get pretty much all the exposure you need to key sectors in the domestic and foreign financial markets with just a handful of broadly diversified funds. Once you start venturing into funds or ETFs that invest in ever narrower slices of the market, any performance boost you get is likely to be minimal at best -- and your returns could just as easily suffer.

Performance aside, there's also the difficulty of managing a complex portfolio. The more funds you own, the higher the odds you'll have a lot of overlapping holdings. That not only makes it harder to determine your true allocation to different asset classes; it can turn what should be a simple exercise of annual rebalancing into a colossal headache.

So at the very least, I think you ought to pare back the number of funds you own to a more manageable, and sensible, level.

I can't tell you exactly what the right number of funds should be in your case. But I can say that it's possible to get adequate diversification with as few as three broad index funds -- a total stock market, total bond market and total international stock fund, all available on our MONEY 70 list. More adventuresome investors should be able to get by with somewhere between five and 10 funds. Go beyond that number, and the downside is likely to outweigh any upside.

Keep in mind, too, that it's not just the number of funds that counts. Equally important is that you end up with a portfolio that meets your financial needs and jibes with your tolerance for risk.

Given your age, you presumably want a portfolio that can generate reliable income to supplement Social Security and any pensions you and your wife may have, but won't crash and burn when the financial markets take another tumble (which, at some point, they inevitably will). So however many funds you eventually choose, you need to be sure that your overall stocks-bonds mix is consistent with those goals.

Finally, while I believe most individual investors are capable of creating a portfolio on their own that can provide secure income throughout retirement, I also understand that many people prefer some handholding. Since you're working with an adviser, I gather you're in that group.

So assuming you take my advice and re-organize your portfolio, you'll also need to decide whether to embark on this project with your current adviser or hire a new one.

That's up to you, of course. But if I were you, I'd at least talk to some other advisers, if only because I'd have a hard time trusting the judgment of someone whose idea of sound investing involved putting me into more than 30 funds.

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