The more you want to reduce the volatility the more you are implying
you want to hit an average. A simple alternative is to buy the index.

Anything less than the full basket implies one of two things.

Either that you expect you can do better than the index average or it
is just to hard to buy the full basket directly. A spin on the first is
to do as well as the index average with a reduction in the volatility.
Minor example - REITs tend to offer the same 10 year return as the S&P
index but with half the volatility.

So, are you looking to do better than the average with relatively low
risk or are you just trying to keep up with the index? The first
implies you need to pick specific funds while the second can be reduced
to just buying an index and riding the average. Yes, an index can be
bad in the short run as there are times when the index goes down and a
different mix would have been a lot better. What time horizon are you
considering?

As you noted if you have small positions and they do well the overall
impact to the portfolio is going to be so minor it might not be worth
the effort. If you do it for sport and find it a good way to have some
fun that is different.

John B. Corey Jr.
Chelsea Private Equity, LLC
+1 (503) 906 7840 x1108
+1 (503) 210 0227 (efax)
john.corey[at]ChelseaPrivateEquity.com

Looking for hard money for your latest real estate deal?
Visit www.ChelseaPrivateEquity.com

To answer your last question first, I have 13 funds in my $million+
portfolio. The four smallest ones total 10%, and it is more trouble
keeping track of them than they are worth, so I have been thinking
about rebalancing them away.

I think you are right about using a total market index for your core
holding. You can add a midcap or smallcap fund if you want to
overweight in that area, or add a value or growth fund if you want to
overweight that way. Then add an international fund and an emerging
markets fund. I don't see any fixed-income investments, which makes me
wonder about the age of the investor. It also shows that the investor
is fairly aggressive.

My recommendation:
35% total market index
10% midcap
10% smallcap
15% international
5% emerging markets
25% fixed income - bonds and cash

If the investor is less than 50 years old, forget the bonds and cash
(assuming a sufficient emergency fund elsewhere) and divvy that 25%
among the other categories.

Dave

joetaxpayer wrote:

- quote -

You want a variety of funds or stock holdings so that you can rebalance
as the market changes. A total market index doesn't allow you to do
that. You should have more sector specific funds or stocks.

--
Ron

Note well that the large majority of managed funds do worse than the
full
market over the long term. And that there are more mutual funds than
there
are stocks. I suggest the minimalist approach for the bulk of a stock
portfolio.
Just buy VIPERs (VTI). You get tax efficiency, very low fees and full
market
diversity.

I am in the position of critiquing a portfolio suggestion.
Included are ETFs that represent;

Large Cap (2 different ETFs)
Mid Cap (2 different ETFs)
Small Cap (2 different ETFs)
Microcap (just one)
Non-US developed
Non-US emerging

This is 75% of the funds suggested.

The remaining funds are a mix of sector specific; energy, health,
financial, natural resources, technology, etc. then a small amount of
foreign funds.

The total number of funds is 24, and my first reaction is that there is
little difference between (or really so much overlap) two large cap
indexes, and then mid-cap, etc., that one can probably just buy the
'Total market' index in lieu of these six different funds.

I recall a web sight that allow you to enter mutual fund or ETF ticker
symbols and get a correlation number showing the overlap. Anyone know
what that web sight is?

Lastly, in general, how many funds is appropriate for a million dollar
portfolio, before the overlap become so great that owner simply has too
many funds in it?

(and when I see $2500 each in IAU (gold trust) SLV (silver trust) DBC
(commodity trust) and PHO (water portfolio), I just wonder what's the
point? that's 1% of this portfolio total, hardly enough to matter)

JOE