However, at the same time, I don't want to overdiversify myself by being invested solely in mutual funds alone (Karen's advice). Mutual funds usually have dozens of underlying stocks, which isn't what I want because having more stocks would usually mean diminishing my potential returns.I think there are two separate issues here. First, there is the adding risk and return potential of individual stocks. Of course, this also means you can certainly have lower returns as well. The average investor (literally) cannot beat the market - so for everyone who does better, someone else does worse. This is a risk only you can decide if you want to take.Related to this is the fact that buying and researching and holding individual stocks takes a lot of time and effort. Only you can decide if this is worthwhile for you. Even mechanically you have to keep track of your stocks and follow the pattern you planned on (Hey, this isn't "Little Book that Beats the Market", is it? :) ).However, diversification is different. What Karen provided would not be at risk for overdiversification. The reason is that there should be no overlap between those funds (large, mid, small, foreign, etc). Overdiversification occurs because you own 3 large cap funds or 4 international funds, such that the good and the bad of each kinda cancel our, and you're really left holding and index, except with much higher expenses. This the categories that Karen provides do not overlap, you would be diversified (still a good thing), but not overdiversified.If you still don't want to do this through funds, that's your call, but I don't think this issue is at play here.
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