The advice: Dump the high-fee mutual funds

Your Portfolio: Each month a financial planner reviews a reader's portfolio and suggests improvements.

The Blanchards have admirable savings habits, but they need to overhaul their portfolio to put those savings to work, suggests Paul Greenleaf, a financial planner in Round Rock, Texas.

The couple should start, Greenleaf says, by getting rid of some of their high-cost mutual funds. Fees as high as 6.75%, including upfront commissions and the fund's annual expense ratio, have eaten away at returns.

THE BLANCHARDS' PORTFOLIO:Disciplined savers look for better returns

"If you buy into a fund with 7% fees, and it brings you a 6% return, your return is basically minus 1%," notes Greenleaf, founder of Greenleaf Financial Planning.

Their portfolio's lack of diversification also means it provides little cushion against market volatility, the planner says. Most of the couple's holdings are in large-cap stocks. And the majority of the investments are from the same fund family, Franklin Templeton. "With such a vast number of mutual funds to choose from, that's like eating from only one food group," Greenleaf says.

The planner also worries about "financial inbreeding" in the Blanchards' investments: "Funds that they had were invested in other funds that they had," which led them to believe they had some diversification when they didn't.

Greenleaf recommends that the couple immediately liquidate funds with high expenses and replace them with low-cost funds, such as those from Vanguard. (Many of the Blanchards' investments have suffered losses, so the couple will owe little or no capital-gains taxes when they sell.) He also suggests that they open up a discount brokerage account, to reduce trading costs.

Meanwhile, given the Blanchards' moderate tolerance for risk, the planner recommends reducing their allocation to stocks from 80% to 60%. Even with a more conservative asset mix, they should be able to get a higher return than their previous 2% cumulative return over seven years, given the new funds' lower fees and favorable track record, Greenleaf says.

Razije says she's pleasantly surprised to hear they might be able to reduce investment risk while boosting returns, especially considering that she would have settled for "smaller returns, but safer returns."

The Blanchards should also consider opening a 529 college-savings account for Elira. With a 529 account, they'll retain control over the account and can change the beneficiary if they need to. By contrast, with a Uniform Gift to Minors Account, "once (children) become an adult, it's their money, and they can (use it) to buy a car instead of going to college with it," Greenleaf notes.

The Blanchards acknowledge that building a healthy portfolio that gives them the financial freedom to open up a business and to move when they retire will be a long process. But they say that Greenleaf's advice has helped them lay the foundation.

"He gave us some really good recommendations in terms of reducing our risks, getting rid of fees and cutting some of the overlap we had in our funds," Scott says.