Is it wise to keep all your retirement money with one fund company?

Q: Should we be thinking about diversifying our retirement savings to multiple other fund companies other than just Vanguard?-- Dominic

A: Thank you for your timely question. The Wall Street Journal recently ran a detailed story on the vulnerability of the financial system to another crisis on the 10th anniversary of the bailout of Bear Stearns, the investment bank. While the article emphasized that the financial system is better prepared to handle another crisis than the seat-of-the-pants response of a decade ago, odds are another crisis lies in our future as memories fade and credit profligacy drives out prudence.

Diversification is a time-honored strategy for reducing risk.

The simple answer is your retirement funds are safe. Vanguard, Fidelity, T. Rowe Price and other fund companies establish each mutual fund as a separate company. The assets in the mutual fund — your investment — are held by an independent custodian. The custodian must keep the mutual fund's assets segregated from other accounts.

Even if there is malfeasance at the fund-management company or it falls into financial trouble, the mutual fund assets are with the custodian. Those assets are available to meet redemptions.

This structure is designed to protect fraud and malfeasance. It doesn't prevent the value of your portfolios from spiraling lower, of course.

If you own stocks and other securities in a brokerage account — including mutual funds — they are also segregated into separate accounts.

Vanguard and similar companies buy private insurance for another layer of security — a reason why I like brand name blue chip firms.

There is nothing wrong with diversifying and if it helps you rest better, do it. Many near-retirees find themselves invested in multiple fund companies after several job changes during a long career. If you are pleased with the fund company options, you don't need to consolidate. But many people find it easier to manage their retirement portfolios if their money is held with one institution that offers good service, low fees and sound investment choices. They aren't making a mistake.