Building a mutual fund portfolio requires a well thought out investment strategy that can prove rewarding over a long period of time. If you act as your own investment advisor, you will most likely implement a strategy that focuses on no load mutual funds. No load mutual fund investors normally either invest in the best mutual funds from one fund family, sometimes with the help of a mutual fund newsletter, or invest in the top mutual funds from several fund families. The rationale for implementing either of these strategies depends at least partly on your view on how to best add value to a portfolio.

Selecting the Best Mutual Funds From One Fund Family

Investors who believe that asset allocation is more important than manager selection are the likely implementers of a single-family approach. As long as you can find a fund company that offers high quality no load mutual funds that cover a wide variety of sectors and styles, you should be able to implement this approach. This strategy is top down and active in terms of asset allocation but passive regarding manager selection. While fund managers are important here, they do not drive the investment process. Several mutual fund newsletters offer model portfolios comprised of mutual funds from one fund family.

Selecting the Top Mutual Funds From Several Fund Families

The multi-family strategy normally incorporates a top down as well as a bottom up approach to investing no load mutual funds. For the purpose of this article, top down refers to asset allocation while bottom up deals with manager selection. Investors using this approach create a desired allocation and then select the best funds available to implement the strategy.

Which is the Better Approach?

Single-family and multi-family investing are both viable investment strategies. However, spreading the risk among several companies can reduce what I would call mutual fund company risk. Fidelity and Vanguard are very highly regarded and successful mutual fund companies today, but no one knows what the future will bring. No company is infallible, as we have seen in recent years with the demise of top companies once considered to be leaders in their fields. Further, there is no reason why a person cannot invest in no load mutual funds from several companies. Sure, you are likely to get a plethora of statements in the mail, but you could opt for electronic delivery. Unfortunately, far too many people consider the volume of mailings to be a factor when choosing an investment program.

The Expense Factor

Whether you decide to invest in the no load mutual funds from one family or several, please make sure that you are selecting funds with relatively low expense ratios. The evidence is clear and convincing that mutual funds with low expense ratios outperform funds with high expense ratios. This is especially true for funds that invest in the large-cap sector, where it can be difficult for a manager to outperform the S&P 500 Index, a widely used benchmark for large-cap mutual funds. In the large cap-world, information is widely known and some managers find it challenging to add value through fundamental research.

Parting Advice

The decision to invest with one family or several can be very personal. Some people fall in love with their fund companies just like a portfolio manager falls in love with a sector and refuses to expand into other parts of the market. Emotions tend to cloud your judgment, leading to less than optimal investment decisions. Although as humans we are innately emotional, when navigating the investment world, you are better off making rational investment decisions.