I was recently quoted in the April 2010 edition of the Motley Fool Rule Your Retirement newsletter.
The article, by Robert Brokamp, was a Q&A under the Expert Corner, where he asked a group of financial planners what were some of the common issues they see in their financial planning work. I addressed a faux pas I frequently come across. Here’s the excerpt from page 5:
Brokamp: Are there any financial planning faux pas? “Some people unintentionally hold portfolios that are over- or under-weighted in key areas. They think they’re diversified by holding a slew of mutual funds only to find the underlying holdings are duplicated. As an example, I recently
worked on an asset allocation recommendation for a client who had nine actively managed funds to choose from inside a 401(k). The problem was that many of the funds held assets across various asset classes. One fund, categorized as a U.S. small-cap fund, held only about 60% in domestic small caps,
with about 8% in cash and the rest in mid caps (even some large caps), with a sprinkling of international stocks. Since these are actively managed, these allocations are only what were recently reported. The fund managers may have shifted their holdings since the last report. The bottom line is, when you try to put a bunch of actively managed funds together in a portfolio, it can be quite tricky to get a decently diversified allocation. In these cases, you need to keep a closer eye on style shifts in the underlying holdings and not assume the fund name tells it all.”
— Mary Deshong-Kinkelaar, CFP, Chicago, Ill.