Expert: Paul Henneman - 9/6/2007

Question
I read your article on beginning investing.  I have a little over $6k in one mutual fund.  Your advice was to branch out at $5k.  When I decide to "branch out", should I buy into a new fund or exchange shares from my current mutual fund?
Thank you for your article and your response.

Spencer

Answer
Spencer,
  Thank you for your follow up question!
The only real factor to keep in mind is that most mutual funds have a one or two thousand dollar minimum investment minimum. So I agree that you really have two options: you could invest the minimum in a new fund and begin putting your additional contributions going forward into the new fund, or you could simply split your current investments in half, and have half in each.
   Ultimately, this second approach will get you diversified more quickly. As long as the trading fees to do this are not too much, and they should not be, that may be the way to go. Then you could either divide your contributions going forward to each mutual fund, or alternate making an additional investment in one fund, then the next time you add funds do this with the other fund.
   Ultimately, it really is up to you and what you are most comfortable doing. Any of the above will be effecting. One thing I would ask: is the mutual fund you currently hold set up as an IRA account or ROTH IRA? If yes, great. If not, and you would like to discuss this in more detail as there are fantastic tax advantages to doing this, please do not hesitate to follow up with me.

Best Regards,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com