One of the most popular features in my newsletter, Morningstar PracticalFinance, is called "Portfolio Makeover," featuring the before and after portfolios of real-life individuals. Some of the portfolio submissions I receive need a complete overhaul, while others feature well-thought-out asset allocations and topnotch stocks and funds.
Nearly all the portfolios have one thing in common, though: They're way more complicated than they need to be. Most portfolios feature upward of 25 stock and fund holdings, and I've even seen portfolios with 70 or more individual stocks and funds.
It's easy to see how that happens: Many couples are investing in more than one company retirement plan, and they may also have a few different IRAs and taxable accounts. And most investors, knowing that diversification is desirable, layer on multiple holdings within those accounts. Wall Street's tendency to peddle the hot investment du jour doesn't help matters. People own niche offerings that they easily could do without, such as funds that focus on a single market sector or geographic region. In the late 1990s, every other portfolio seemed to feature a technology or Internet fund; over the past five years, energy and commodities have been de rigueur.
Of course, diversification is good, but it can get out of hand. The big drawback to an excessively large portfolio: You could end up with more investments than you could realistically keep track of. If you own ...