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.

IF you’re an ISA or SIPP investor, chances are you hold a lot of your investments in funds. There are plenty of reasons why this is a sensible approach.

Funds are pooled investments that bring together the money of a number of investors, which is then invested by a skilled fund manager in a basket of different bonds, shares or other assets, depending on the type of fund.

As an investor in a fund, you effectively hold a slice of the fund and its underlying holdings.

You’re ‘outsourcing’ the difficult and important decision of choosing the right mix of investments to a trained professional (the fund manager), who has the right tools, experience and with fund houses like Fidelity an army of analysts supporting them to research companies and make the right investment decisions.

It also means spreading your investment risk and increasing your exposure to more opportunities. It’s about eggs and baskets.

But can you hold too many funds? The short answer is yes. Remember that each fund, investment trust or ETF that you hold will invest in at least 20-30 stocks - quite possibly more. If you hold 20 funds or more, you will be holding hundreds, possibly even thousands of underlying stocks.

So what’s the ideal number?

The answer depends on your experience as an investor and the size of your portfolio.

If you’re a beginner investor, a single fund, which is adequately diversified could be enough. Think of a multi-asset fund such as the Fidelity Select 50 Balanced Fund, or a global equity fund such as the Rathbone Global Opportunities Fund or Fidelity Global Special Situations Fund.

As your portfolio grows, and with it your investment confidence and knowledge, you can add more.

If you only have a small pot of money, holding too many funds can get pricey. Perhaps consider holding a global ETF such as the Fidelity Global Quality Income UCITS ETF or Vanguard FTSE All -World UCITS ETF to ensure diversification while keeping costs low.

For an experienced investor, with a large portfolio of more than £100,000, anywhere between 10 and 15 funds is more than enough. Advisers will typically recommend that your minimum fund size is at least 5% of your portfolio, so that’s £5,000 invested a single fund in the case of a £100k portfolio. It can also be prudent to limit exposure to any single fund to no more than 15% of your overall portfolio.

While it’s important to have a mix of styles and strategies to achieve diversification, that doesn’t need to mean a long, unwieldy list of funds. Moreover, having a personal cap on the amount of funds held in your portfolio ensures that when you see an enticing new fund idea you want to add, you need to reappraise your portfolio and cull the weakest link.

That’s the beauty and discipline of investing.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment on ISAs and SIPPs depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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