Paul Ryan's Jumbled Mutual Fund Portfolio
The best approach is to shop carefully for six to ten funds. The holdings should complement each other and provide adequate diversification. By buying a limited number of funds, you can keep track of each one and understand its role in the portfolio.
To demonstrate how mutual funds can be used effectively, I have designed a model portfolio for the Ryans. Holding six funds, the portfolio is suitable for someone of the couple's age and family responsibilities.To find the funds I sorted through the couple's existing holdings, eliminating some poor performers and selecting solid funds that are worth keeping. Because the Ryans are in their 40s with three children, I set the allocation for 40% in bonds and 60% in stocks. That classic approach takes only moderate risk and allows potential for growth.
In their current portfolio, the Ryans have two intermediate-term bond funds -- Nuveen Intermediate Term Bond(FAIIX) as well as Pimco Total Return. Both funds have similar holdings, including big stakes in government issues and high-quality mortgage-backed securities.Because there is no reason to duplicate assets, it makes sense to keep only the Pimco fund. With bond star Bill Gross at the helm, the Pimco fund returned 7.0% annually during the past ten years, while the Nuveen fund only returned 4.7%. I will put 30% of assets in Pimco.