Another thought to keep in mind about your portfolio is “overlap.” Overlap is a situation where you own different mutual funds that hold similar investments. By owning a number of funds you may think that you are diversified, only to find out when they all lose money at the same time that the different mutual funds have invested in the same stock.

Say that you and your spouse talked about grocery shopping and you came up with a list of what was needed. Neither of you told the other that you were going to the store. When you came home, your spouse had just made it back from the same store you shopped at. As you can see comparing both of your grocery carts, there are similar items in both carts. This means you have more of those items than you needed.

This also can happen if you have an overlap in your mutual funds. It’s important to look at what each fund is made up of and compare them to ensure that you aren’t paying extra transaction costs for the privilege of having far more exposure to the same markets then you plan on.

Similar to tax efficiency, it’s important to consider the costs of having a specific fund or type of investment. 

Think of expenses for investment accounts in the same way as the cost of grocery shopping. If you saw the same carton of eggs that had the same kind of eggs in the carton, which one would you choose? The lesser priced carton. Why? Well if you can get the same thing for a lower price what is the point in spending the extra money? 

The same logic applies to reviewing the expenses within each fund in your portfolio. This idea is to find the best value for what you need and not paying for the same item twice (overlap).   

Philosophy And Process