When looking at diversification of a mutual fund portfolio, how many mutual funds should I be buying into?

For diversification, putting it into five or so funds that invest in different types of stocks is best. You shouldn't put it all into an S&P500 fund, because that fund only represents 500 of the biggest companies in the United States -- it doesn't cover small-cap stocks or foreign stocks, for example. You should probably have a large-cap fund, small-cap fund, foreign-stock fund and maybe a value fund and a growth fund. If you buy to many funds, you are likely to have overlapping investments and would be less diversified.