"I'm 23, single, female with $1000 in investments split between 2 mutual funds in a Roth IRA. As I continue to invest, should I keep investing into those two funds or diversify my money into additional funds?"
Congratulations on starting to invest for your financial future at such a young age! I also applaud you for reaching out for advice and not just winging it. As I tell all my clients, the decisions you make in your early years have a huge impact both positively and negatively on your financial future. That is why it is so important to make the right decisions now. You are already doing the most difficult step which is saving and investing.
Your question is a common one amongst people that are just beginning to invest for their financial future. Many understand the importance of being diversified and spreading out their risk. The difficult part is purposely achieving this diversification. I carefully chose the word purposely because it reflects that it is important not just to have diversification but that you understand how you achieved diversification and are able to manage it as well.
In your case, having two mutual funds does not necessarily mean that you have diversification and on the other hand, having two mutual funds does not mean that you aren’t diversified. What matters is what the mutual funds are invested in. With the information that you provided, it is possible that you aren’t as diversified as you might think. For instance, the two mutual funds that you own could both be invested in large US companies. Even though you think you are diversified because you have two mutual funds, you could just have two mutual funds invested in the same companies. It is also possible that you are already diversified. Perhaps your mutual funds are what’s known as balanced or target date/retirement mutual funds. These funds are already well diversified meaning they offer exposure to stocks and bonds, U.S and international companies, large and small companies. You get the idea.
As you are just starting out in investing, I recommend seeking ONE mutual fund that provides you this type of wide diversification. Explore the plethora of balanced or target date/retirement mutual funds. Make sure to stick with one that is low cost and chooses the companies that it invests in based on indexes. If you still need help, I recommend talking with a fee only financial advisor. Remember; don’t just wing it because the money you save today could be worth a great deal 40 years from now.
As a side note, I don’t think you should stick with this strategy for your whole life but for now this is not only the easy way to go but the most efficient way as well.