Noncore holdings are the stop-and-go funds that may juice up returns - funds that focus on a single industry or emerging markets, and funds run by managers who make large bets on particular holdings or on certain parts of the market. Small-cap funds could also fall into this category, simply because they tend to be more volatile than large-cap funds. Use noncore funds for diversification and growth potential. For instance, if your portfolio's core is made up of large-cap funds, you might want to add small-cap, international, or sector funds to the noncore portion of your portfolio for diversification. As we discussed in the previous lesson, a variety of funds improves the likelihood of at least one of your investments doing well at a given time.
Though you probably wouldn't want to put a significant portion of your portfolio in any one of these types of funds, they do allow for the possibility of extraordinary returns. Of course, they also generally carry a higher level of risk. But as long as you limit the riskier portion of your portfolio, you aren't likely to threaten the bulk of your nest egg. And for some people, core funds may be all they ever need.
Don't Worry about an Optimal Number of Funds >>