Is it Risky to Have All of Your Mutual Fund Investments with the Same Fund Company?

It is likely, at some point in your life you will work for a company that offers a retirement plan, like a 401(k).  It would be very common for that 401(k) Plan to offer many fund options from the same fund company. In my experience in analyzing these plans, I have seen employers seek easy to implement, bundled solutions for their retirement offering; where the accounts are held by the same company who is also running the mutual funds, and the financial advisor is also with that firm. We as individuals learn from our company plans and attempt to mimic the notion of bundling services. Just because your company does it doesn’t mean you should!

I could talk about company retirement plans all day, but let’s focus on you, your accounts, and your investment choices. The largest mutual fund companies are Blackrock, Vanguard, State Street, and Fidelity. Each of their mutual fund assets is in the trillions, and odds are your own assets are included in those trillions. If they are the biggest, does that mean they are the best? Does that mean we should own many of their funds and pay for their other services too? And if we own several of their funds should we expect a better fee?

Investors hold several funds from one fund company because opening an account at the same place where the fund is managed seems easy and straightforward… manageable. Vanguard certainly makes that possible. They have over 370 funds, over $4 trillion assets, and 20 million investors around the world. They offer enough variety of style and asset classes to make it easy for someone to only own Vanguard. My experience as a research analyst has taught me that a fund family typically has a specialty or a sweet spot when it comes to money management and outperforming their peers. Vanguard may have a fund that is considered the top performing fund in one category but may easily have another fund in another category that doesn’t rank so well. A fund company simply cannot be everything to everyone in all categories or asset classes. You should decide does “ease” outweigh your interest in selecting the best in a particular category.  Sometimes that answer is yes and sometimes it is no if you are someone who will dedicate the time to finding and monitoring the best investment (I promise you can be that person, click here to see my post on fund selection). Which are you?

When looking at getting the most bang for your buck, our consumer minds tend to think that when we purchase quantity we should get a better deal. I would generally agree that is the case when purchasing investments too. Let’s use Fidelity’s Low-Priced Stock Fund as an example (not an opinion to buy or sell this fund). That fund follows a stated strategy for buying and selling stocks. When you go to buy that fund you must select a share class to purchase. Fidelity Low-Priced Stock Fund offers a K6 share class and an investor share class (you would have no way to know what those mean or if you qualify for purchase unless you looked them up or called the fund family; take the time to find out). The share class you choose determines the fee charged, the minimum investment amount required, and your voting rights as a shareholder.  Share classes with higher minimum investment requirements will tend to have lower fees. It is fair to say that the higher the investment amount the lower the fee you can potentially get with most investments, not just regulated mutual funds. However, when it comes to quantity, I have never seen a scenario where the more mutual funds you purchase the better the fee you get. Fees on mutual funds are called expense ratios. The fund’s share class has no way to know if you have 20 different Fidelity funds or 1, so you cannot get any “discount” for the number of different funds you own. Fees can seem very overwhelming but it is something you CAN learn (one of our previous posts can help, click here). The fees charged on your investments will impact your long-term investment returns and that could change your outlook for the future. Excessive fees can be avoided.

Do what is best for you. With heavy mutual fund regulations in place, I would not say it is risky to own many funds from one fund company. You must, however, do your research and have a sense of the size of the team running your mutual funds. You want to make sure if anything happens to any key individual that the company and your investment will not suffer. What may be risky is if you sacrifice the quality of your choice for ease. Decide whether you want simplicity or if you want to be sure you have the best investments for your portfolio. Ask questions about fees. For accounts outside of a company retirement plan, you have to do what is best for you and that may mean your account is a little different than your company plan.

 

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3 thoughts on “Is it Risky to Have All of Your Mutual Fund Investments with the Same Fund Company?

  1. Good Read. My friends are also convincing to try investing on mutual funds and stocks. I am still reading through blogs and books re trading and related stuff that I need to learn about. Thanks for sharing!

  2. This is a very informative post. Thanks for sharing. My company’s retirement plan is with fidelity and they manage our funds. But I don’t believe I’ve invested in their fund. I have to check.

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