Course 501: Avoiding Portfolio Overlap
Do You Have Too Much in Any One Stock?
In this course
1 Introduction
2 Do You Favor One Investment Style over Another?
3 Do You Have Too Much in Any One Stock?
4 Do You Favor One or Two Sectors over Others?
5 Do You Own Too Many Large-Cap Funds?
6 Do You Own Multiple Funds Run by the Same Manager?
7 Do You Own Multiple Funds from One Boutique Family?

Sometimes, two funds' portfolios may look slightly different, but you need to be aware of how much you own of any particular stock. For example, both fund managers may have made outsized commitments to computer giant Microsoft, increasing your issue-specific risk.

If you invested in only one or two funds, you could determine your portfolio overlap by scouring shareholder reports and punching numbers into a calculator. But if you own more than a few funds or if you want to see just how another fund might change your current portfolio mix, this process is cumbersome. The Morningstar.com  Instant X-Ray tool offers an easy way for Morningstar.com Premium Members to check for overlap.

The program examines each fund's top holdings and weights them according to how much you have invested in each fund. If you have included individual stocks in your portfolio, the program can easily consider them in the final balance as well. This is particularly important if you own a significant amount of your employer's stock in your 401(k) plan; you may find that your mutual funds also own that same stock. There's nothing wrong with holding some of your employer's stock, but you need to balance that investment with the rest of your portfolio.

Next: Do You Favor One or Two Sectors over Others? >>


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