Diversification is the only free lunch in investing. But if you have over 5 or 6 mutual funds, it becomes more like an overcooked meal at an expensive restaurant.
Tom Bradley co-founder of Steadyhand Investment Funds, has a lot of investors coming to him with portfolios made up of dozens of mutual funds. They are effectively tracking the stock market and would be better off in an ETF at 0.2% a year rather than the average 2.5% a year charged by mutual funds, says Bradley in Its Not Rocket Science: Plain-English Advice for Managing Your Investments(see review here).
Or, if paying a premium for active management, investors should have a portfolio thats focused on fewer securities. Bradley says most studies show the benefits of diversification taper off after 20 to 25 stocks.
Avoid the RRSP nightmare, of having too many funds or stocks in your portfolio, he further urges. Instead of putting RRSP contributions into the investing theme for that RRSP season, put them into a fund or stock you already hold, especially if it serves to rebalance the portfolio back to your desired asset mix.