Mutual Funds Reality Check: Are You Really Diversified?
You might be invested in multiple mutual funds, but they might be invested in the same stocks. Here’s how to go about fixing that.


Mutual funds were created to give the individual investor a broad-range, diversified portfolio. Is that true? The vast majority of today’s retirees and pre-retirees own mutual funds. Chances are good that you may not be getting the diversification you expected.
Though mutual funds can offer access to a wide range of investments, it’s easier than you might think to end up with a portfolio that’s unintentionally concentrated. Even if you own multiple funds, you may be invested in securities that are similar or exactly the same. And that could put your money at risk — especially if you’re near or in retirement.
Here’s an example:

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A few weeks ago, a prospective client came to me for a second opinion on his holdings. He believed his portfolio was adequately diversified because he owned seven different funds from one well-known investment group.
Many of the same top stocks held in mutual funds
But when I took a look, I found that $400,000 of his $500,000 portfolio was concentrated in four of that group’s flagship funds. Interestingly, the holdings in those four funds looked amazingly similar.
- Fund A’s top holdings included Microsoft, Apple and Alphabet (aka Google)
- Fund B’s top holdings at that time were Apple, Microsoft and Amazon
- Fund C’s top investments were Apple, Microsoft and Facebook
- Fund D’s top holdings were Microsoft, Apple and Alphabet
The overlap didn’t end there. The other funds’ holdings were also strikingly similar. Even more concerning is the fact that the top positions represent a disproportionately large percentage of the fund’s assets.
Here was a guy who thought he was playing it safe by investing in several mutual funds. Instead, he owned stock in mostly the same few companies across his funds. Not to mention that such a heavy investment in one sector could also have put him at risk. If there had been, hypothetically, a prolonged sell-off of those tech stocks, it could have crashed his retirement.
Better alternative strategies available
The thing is, I actually liked the companies this gentleman’s funds were holding. But with that much to invest, if he wanted those or any stocks that much, he could have just purchased them on his own and avoided the high costs often associated with mutual funds. And he wouldn’t be looking at his statements each month believing his funds were providing the diversification he needed to safeguard his nest egg. There are potentially better alternative strategies available that could be utilized to achieve his goals.
OK, I know what you’re thinking: What are you supposed to do if most or all of your money is sitting in your 401(k), and you have a limited menu of stock-and-bond mutual funds?
My first recommendation would be to learn enough about investment basics so you can evaluate the funds you’re offered and make good choices, keeping true diversification in mind. Or you could hire a financial professional to help you review and assess the performance, costs and other aspects of each available option.
If you’re a do-it-yourselfer and you like the simplicity of a target-date fund, you should be careful and investigate the fund’s actual holdings and track record. You might find there is more risk in target funds than you realize.
If you left behind a 401(k) with a former employer, you might consider transferring that money into a traditional rollover or Roth IRA. You will likely be given access to more and often better investment options.
A financial professional can help you check across all your different accounts — including your spouse’s — to be sure you’re avoiding an overlap. Or you can use the U.S. Securities and Exchange Commission’s EDGAR search tool to view company prospectuses and get more information about investing in mutual funds.
What to do if you find you’re overly concentrated
If you find you have some duplicates in your holdings, or you’re overly concentrated in a certain sector, you can decide whether it makes sense to sell and invest in an area where you don’t have as much exposure. (Make sure you understand the tax consequences of selling if you’re working with holdings in a taxable account, though. It might be better to make necessary adjustments in a tax-deferred retirement plan rather than an account that’s taxable.)
An experienced financial adviser can also help you decide on an appropriate level of exposure to a certain stock or sector based on your age, risk tolerance and other factors, no matter where you’re keeping your money.
He or she can keep you up to date, as well, on what’s happening in the U.S. and international markets, and with the U.S. and world economies, and explain how those changes might affect the balance of the investments in your accounts.
Keep in mind that portfolio diversification can be especially important for older savers, who don’t have as much time to recover from an investing error or oversight. Mutual funds have a reputation for having built-in diversification — but that’s not always true. If you don’t pay attention to your fund’s specific portfolio, you could actually end up limiting your gains, increasing your risk and potentially blowing up your retirement!
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
related content
- For a Concentrated Stock Position, Ask Your Adviser This
- Managing a Concentrated Stock Position: Too Much of a Good Thing
- AI Has Powerful Potential to Make Investing Decisions Easier
- Want to Get Rich and Stay Rich? Avoid 10 Investing Mistakes
- How to Get into Alternative Investing
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Daniel Sullivan is the founder and president of Sullivan Retirement Resources, LLC, a Registered Investment Adviser with locations in Massachusetts and New Jersey. He has a bachelor’s degree in economics from Clark University, and he also studied at The College of Financial Planning and The American College of Financial Services. Daniel is the author of “Are You Playing Retirement Roulette?: A Survival Guide to Retiring in Today’s Turbulent World,” now in its second edition.
-
Retirement Health Care Costs Are On the Rise: What You Need to Know
A 65-year-old retiree will face significantly higher lifetime health care costs than they would have a year ago, even with Medicare. Here are the surprising totals.
-
Virginia Tax-Free Weekend 2025 Is Here August 1–3: What to Know
Sales Tax Three days, no sales tax. Here’s what qualifies for Virginia’s tax-free weekend.
-
You Don't Have to Be Wealthy to Need a Wealth Manager
Navigating complex financial decisions is hard on your own, no matter how much money you have. A wealth manager can provide comprehensive financial planning, investment management, risk management and more.
-
Despite Tariffs, These Investment Experts Are Bullish on European Equities
European equities were one of the better-performing investments during the first half of 2025. They could be a good long-term prospect for U.S. investors needing to diversify, according to these investment managers.
-
How Do You Know You Are Ready for a Gray Divorce? 15 Yes-or-No Questions
As people 50 and older get more gray divorces, many splits are initiated by women who want a new path. Answer these 15 questions to see if you might need to think about how you should move forward.
-
'Buy Now, Pay Later' for Everyday Spending? This Financial Pro Thinks It's Risky
'Buy Now, Pay Later' apps can get you out of a jam when you need money quickly. But using them regularly for small purchases could create problems.
-
Five Things to Consider Before Rolling Your 401(k) into a Roth IRA
Converting at least some of an old 401(k) to a Roth IRA can offer long-term tax benefits and retirement flexibility, especially if you anticipate being in a higher tax bracket later or wish to leave a tax-free legacy.
-
From Dream Apartment to Nightmare: When Your Landlord Evicts You Through No Fault of Your Own
This is what I suggested a tenant do to get out of her lease after her landlord's inexperience and lack of action made her rental situation unsafe. It's a legal situation called 'constructive eviction.'
-
Six Steps to Being Empowered and On Track: An Expert Financial Guide for Women
While most female investors feel on track with their financial goals and empowered by managing their investments, many regret not starting sooner. Here's how you can get started and take control of your financial future.
-
Selling Your Business? This Powerful Insurance Option Unlocks Multigenerational Wealth
Private placement life insurance (PPLI) offers almost unbelievable investment flexibility, estate planning and tax advantages. And it's completely legit.