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Mutual Funds: Your Portfolio

BOSTON (CBS) - To reach your financial goals of a comfortable retirement or sending the kids to college most of you will be investing in the stock market despite this volatility. Each month I contribute to my granddaughter's college fund, no matter what the market is doing.

And for most of us we use mutual funds for we don't have enough money to have a diversified portfolio just buying individual stocks. We pay someone else, a fund manager, to mind the store for us and choose the investments.

You will want to build a portfolio based on your goals and time horizon. How many funds you own is partly a function of how much money you have to invest. And for many the easiest thing is to invest in an index fund. Eighty percent of managed funds underperformed their indexes so index funds are for the most part good choices.

You don't need a lot of mutual funds to be successful. Start with an S&P index fund and then add a mid-cap and a small cap index fund. When you are ready to venture more add an international fund.

Keep your emergency fund in a money market. And the older one is the more conservative you should be with your retirement portfolio and begin to add bonds.

You will need to know the various fund minimums and you want enough money in each fund to make an impact on your portfolio's overall performance.

Learn about overlap. Overlap is owning too many of the same style mutual funds which invest in the same individual stocks. In doing your research check what the fund's top holdings are to see how much overlap there is.

If you are investing outside your retirement plan at work, consider going to some type of mutual fund super market that allows you to own the best mutual funds from different companies. Fidelity and Schwab both allow you to own other mutual fund families.

This will put all your holdings in one place and on one statement which makes life a whole lot easier when it comes tax time.

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You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.

Subscribe to Dee's Money Matters newsletter here.

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