Should I reduce the amount of funds I hold in my ISA?

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Q: My wife and I have a total of 27 funds in our ISAs. Is it better to reduce them? We’re looking for income in our retirement.

Diversification is a key part of any investment portfolio — but there is no magic number when it comes to the ideal number of funds you should hold in a portfolio. Much will depend on your individual circumstances, such as the overall value of your portfolio, your longer-term investment goals, and how well-diversified these various different funds are to start with.

For example, an MSCI World tracker might invest in around 1,500 individual stocks. But other thematic funds, or those that follow a particular investment style, will typically have far fewer holdings. WS Lindsell Train UK Equity and Fundsmith Equity — both widely held UK funds — hold 19 and 28 stocks respectively.

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While it’s important to diversify across sectors, geographies and investment styles, you don’t necessarily need a long, unwieldy list of funds, which can make it harder to keep track of performance, costs, and income generation.

Remember, it is quality rather than quantity that is key.

There is also a danger that with 27 different funds you may have a considerable degree of overlap and duplication in the underlying holdings of the funds, which can make it harder to see if your portfolio is effectively diversified.

If you don’t have a clear picture of where these different funds are invested, this could be a good argument for pruning the number in your portfolio.

You state you are looking for income in retirement, so it makes sense to review whether these various different funds are delivering against this goal. You may find that some are more growth-focused, and don’t pay regular dividends or yield — so may be less suitable for you as you move into retirement.

Look for funds that offer consistent and sustainable income, potentially alongside capital growth. This is likely to include equity income, global income, strategic bond or multi-asset income funds.

Before making any changes it is worth looking at Fidelity’s Select 50. This is a list of funds chosen by the team’s independent experts. This list features active and passive funds, investment trusts and exchange-traded funds (ETFs) — and it’s possible to look at funds based on the income they deliver.

Fidelity has some useful tools on its website, including its Navigator tool, which can help you review current holdings and give you suggestions for future investments.

If you feel confident that your current portfolio meets both you and your wife’s needs then by all means stick with it for now. But you may find that reducing the number of funds could make your ISA portfolio more efficient, easier to manage, and more suitable for your needs in retirement.

If you’ve got a burning question you want to ask, why not drop us a line? Ask us your question.

• Read: What’s the right number of funds to hold?
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• Read: The ‘sleep at night’ investment funds