ON INVESTING & THE LONG VIEW

The Allocation
Letter.

More funds.
The same bet?

A longer list of fund names can still lead back to a surprisingly short list of companies.

Dear reader,

There is something reassuring about a list. A second fund. Then a third. Different names, different pages in the account statement. It can feel like each addition brings another layer of variety.

But the label on a fund is only the cover. The investments inside tell the more useful story. Two funds may own some of the same companies, leaving a portfolio more concentrated in those businesses than its collection of names suggests.

THE IDEA IN ONE LINE

Count the exposures.
Then count the labels.

A small thought experiment.

Imagine a portfolio split equally between two funds. Company A is 20% of the first fund and 40% of the second. How much of the combined portfolio is exposed to Company A?

(50% × 20%) + (50% × 40%) = 30%. All fund names and weights are hypothetical; this is not a model portfolio or a recommendation.

The overlap is not automatically a mistake. It is a feature to understand. Diversification depends on the investments held and the risks they share; it cannot remove every source of risk or guarantee against a loss.

Background: Investor.gov on asset allocation and diversification.

IN THE MARGIN

The other thing that adds up.

Overlap concerns what you own. Fees concern what you pay to own it. A fund’s prospectus includes a standardized fee table, but an expense ratio does not capture every possible cost of investing.

That distinction matters when comparing products. Brokerage charges and other costs can sit outside the ratio. Read the fee table with the account’s own charges beside it.

Reading note: SEC guide to fund fees and expenses.

THE READER’S DESK

Before closing the document.

A shareholder report can help connect a fund’s stated purpose with its actual investments. Check the reporting period and the share class, then look at the portfolio breakdown. A familiar fund name can have more than one version.

A question to carry forward: if the fund names disappeared, could you still describe what the portfolio owns?

Until the next letter,
The Allocation Letter

General educational information, not personalized investment advice. Illustrative examples are hypothetical. Investing involves risk.