Diversifying in mutual funds is still a hot topic for debate for most investors. There are investors who prefer to stick with a single mutual fund since one mutual fund contains a number of investment programs. That means another mutual fund will exponentially increase the companies involved in your investment.

Although this might be good, the diversification in mutual funds might lead to frustration since there is an increased risk that is relative to the increased number of companies involved in your mutual fund. A single mutual fund is enough for some investors especially when they have found a mutual fund that has a lot of potential in the coming months or days.

On the other hand, there are those that propose that you need to diversify and increase your investment in mutual fund. They suggest that by diversifying your investment funds, you are increasing your chances of success as you can cushion the blow of a falling mutual fund.

On the other hand, you will also have a good chance to extend your investments in other countries. In today’s investment practices, reaching out to Europe and countries with emerging economy is common because there is an increase of stable companies in Europe and a lot of promising companies in emerging economies.

The Other Side of Diversification

Diversification, however, might be a little bit dangerous and frustrating for other investors. Although diversification will cover the losses, the success might not be universal. That means your investment will not be truly successful since one of your mutual funds might not be faring well in any given time. Your loss might be minimized but your success is minimized as well. The yield that you would enjoy might not be enough to pay for the efforts you place in mutual funds.

Another downside for diversification is on the actual cost of diversification. The expenses that you will incur when you are diversifying your portfolio could eat up the yield that you will enjoy. Instead of posting some earnings, you end up with no gains and no losses. That could be very frustrating since you will be very busy in taking care of those investments.

Options in Diversifying Your Mutual Funds

If you are not at ease with diversifying your mutual funds in different industries, there are safer options which might work as long as you do your research well before starting out in these alternatives.

The first alternative is to do investment in life cycle mutual funds. This type of mutual funds contains not investments in companies but investments in other mutual funds. Life cycle could be likened to 401 (k) except that you are investing your savings for a better yield.

This type of investment will just let you sit back and relax. Your monthly contribution will be invested in different mutual funds. The success is often based on the reduction of risk as you are reaching the maturity date. You life cycle fund starts out a little bit risky for better yield but would eventually reduce the riskier investments until such time that you are solely investing in low risk investment plans.

Another alternative for diversifying your mutual funds is to diversify your portfolio. You can do this without the help of the funding manager. But consider the factors that have been affecting diversification of mutual fund.

First, check if there are mutual funds that might overlap in the sense that they are investing in the same company. Second is to check the expenses in this type of investment. You could be earning but the expenses in getting that yield could exponentially reduce your earnings.