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Fund Spy

Keep an Open Mind on Open-Minded Funds

Excessive focus on style or geographic allocation can be limiting.

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Many financial advisors consider asset allocation one of their main contributions to their clients' success. And they often extend that idea to include allocation within asset classes. In the aftermath of the global financial crisis of 2007-08 and the eurozone-fueled upheavals of 2011, diversification is viewed as even more critical than before. Thus, many advisors will recommend owning a growth fund to balance a value fund, emerging-markets funds in addition to those targeting the U.S. and developed international markets, and may also include a variety of other asset classes besides stocks and bonds.

Diversifying certainly has merit. Over the past decade and more, we've heard too many stories of investors who had the bulk of their retirement funds in company stock that became worthless, or who had loaded up on aggressive equity funds with little attention paid to anything that might hold up better when stock markets declined. Including different types of stock and bond funds, and perhaps other assets as well, can--at least in theory--help investors avoid panic and stick it out through rough patches, because at least a few of these funds should hold up decently well even if others are struggling.

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

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