There are lots of different opinions about how many funds you should own. Some say you can make a portfolio work with just three low-cost Vanguard index funds (a U.S. stock fund, a foreign stock fund, and a bond fund) or one target-date fund. Today, CNNMoney weighs in with a list of seven must-have funds, plus alternatives, for your portfolio:
1. A blue-chip, U.S. stock fund (recommended: Fidelity Spartan 500 Index fund). Note: The minimum investment for this fund is $10,000. (Each of the Vanguard funds mentioned below requires $3,000, and the actively managed funds range from $1,000 to $2,500.) CNNMoney's alternatives for this category include iShares S&P 500 index, which is an exchange-traded fund, and Selected American Shares, an actively managed fund.
2. A blue-chip, foreign stock fund (recommended: Vanguard Total International Stock Index). The ETF alternative is Vanguard FTSE All World Ex-U.S., and the actively managed pick is Dodge & Cox International Stock.
3. A small-company fund (recommended: T. Rowe Price New Horizons, an actively managed fund). The index alternative is Vanguard Small-Cap Index, and the ETF pick is Vanguard Small-Cap ETF.
4. A value fund (recommended: Vanguard Value Index). The ETF choice is iShares S&P 500 Value Index, and the actively managed pick is T. Rowe Price Equity Income.
5. A high-quality bond fund (recommended: Vanguard Total Bond Market Index). Alternatives are Vanguard Total Bond Market ETF and Harbor Bond.
6. An inflation-protected securities fund (recommended: Vanguard Inflation-Protected Securities fund). Alternatives are iShares Lehman TIPS Bond and T. Rowe Price Inflation-Protected Bond.
7. A money-market fund (recommended: Fidelity Cash Reserves). Alternatives are Schwab Value Advantage Money and Vanguard Prime Money Market.
In case you're confused about where you should hold these investments, the story offers tips on which funds to hold in a 401(k), an IRA, and a brokerage account. For investors starting out, CNNMoney suggests:
Take the easy way: Build your seven-fund plan entirely within your employer-sponsored account. If your 401(k) plan doesn't offer all of the seven funds on our list (many plans have limited offerings), don't worry. The vast majority offer some blue-chip U.S. stock, foreign stock and high-quality bond funds, and many also offer small-stock and value options.