Don't Buy All of Your Mutual Funds in the Same Place

This correlation tends to offset the benefits of diversifying investments across different asset classes.

The authors suggest it's a good idea to hold funds across both different asset classes and fund complexes.

Finally, some mutual funds are better than others at corporate governance, or looking out for shareholders' interests.

Mutual fund governance involves a number of issues, but one that is particularly important is the independence of the board trustees for each fund. Most fund companies have taken steps to ensure that the interests of shareholders are protected, such as placing a premium on trustee experience and independence. In particular, these fund companies ensure that the members of their fund boards are not interested persons (i.e., an employee or employee's family member) and that their directors use best practices in the exercise of their duties.

Why is that important? Independent directors are more likely to critically review the fees and expenses of a fund, tie advisory fees to fund performance, respond to shareholder complaints and seek outside counsel for advice.

Some mutual fund directors are also required by the fund family to own shares in the fund in which they serve as director. Talk about skin in the game!

A survey by FundVotes.com of 54 large fund families found significant differences in the level of board support for shareholder-sponsored resolutions this year, an important aspect of corporate governance.

MMA Praxis Funds scored very well, with fund boards supporting 81% of shareholder-sponsored resolutions. On the other hand, support at The Berkshire Funds was hardly exemplary; fund boards never backed a shareholder-sponsored resolution, but it backed management-sponsored resolutions 100% of the time.

Unless you are prepared to research the governance practices of a particular fund family -- you understand what constitutes the best practices -- you risk putting all of your money with a firm that has a less-than-stellar record.

Spreading your mutual-fund investments across several firms is a way of hedging your bets.