David John MarottaDavid John Marotta is the President of Marotta Wealth Management, a fee-only financial planning and asset management firm in Charlottesville, Virginia. He is an oft-quoted writer and speaker on financial matters and his weekly financial column can be found at www.eMarotta.com
Host: What are the types of mutual funds that I should be investing in?
David Morotta: Most people make a mistake because they look at all the mutual funds and then they try to pick which ones they want out of some mutual fund company. The best way is to do it is to look at all of the different asset classes and decide how much you want to invest in each asset class. So, how much do you want to invest in large cap US stocks, how much in small, how much in mid, how much do you want to invest in value versus growth, how much do you want to invest in foreign stocks, how much you want to invest in emerging markets?
After you have decided all of those percentages, then you should look at what are the very best mutual funds in each category and if you do it from an asset allocation, working your way down from stability and appreciation, bonds and stocks, into the all the other asset classes and then determine percentages, then you will know what mutual funds you need to be buying because you will find the best funds in each category.
That is the better way to diversify your portfolio.