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Fund Spy

The Right Kind of Diversification

Proliferation of funds need not lead to confusion or overstuffed portfolios.

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If it seems like there are more funds clamoring for your attention these days, you're not imagining things. Not only has the number of mutual funds expanded by the thousands during the past decade, but numerous exchange-traded and closed-end funds, many of them with very specialized, even exotic, mandates, have also popped onto the scene.

However, it's not just the number of funds that might cause confusion. More and more, investors have been hearing that in order to be properly diversified, they need exposure to more asset classes than they previously had assumed. Instead of just stocks, bonds, and cash, many responsible financial writers and advisors--not to mention fund companies trying to pitch their latest wares--now suggest that a portfolio should also include some real estate and perhaps exposure to commodities as well. And of course, as in the past, you're still told to include among the stocks some smaller companies as well as large, international (and make sure to own emerging markets), and domestic--and both growth and value.

Gregg Wolper does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.