The portfolio diet

Every child has heard the saying, 'Don't put all your eggs in one basket'. The investing version of this idea is diversification, and every investor knows that diversification is good. Mutual fund investors generally take this to mean they should not invest in just one or two funds but spread their investments across lots of funds. The result is many investors seem to equate the number of funds they own with the quality of their portfolio. It's as if an unwritten rule says the more mutual funds you own, the more sophisticated an investor you must be.