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.

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.

Help with choosing funds

There are a number of tools on our website that can help you choose a fund. If you’re an experienced investor, you might find our Investment Finder useful as it allows you to filter and compare a wide range of funds. If you’d like some support with finding a fund based on your risk tolerance, then Navigator can help you with that.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment 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 (57 from 2028). Please note that these guidance tools are not a personal recommendation in respect of a particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.

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