INVESTING STRATEGY
How many ETF's should I have in my portfolio?
Hey! I'm just setting up my portfolio and want to do a big lump sum, i'm getting carried away with how many ETF's I have added and I know it's not sensible feasible to add to so many each month? How many ETF's is the logical amount in a portfolio?
wealthmakesscents
1 September 2022
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5 Comments
over 2 years ago
Hey Emma, great question!
Sorry to say this but there’s no right answer here :)
The logical amount is the number you feel comfortable with and what is practical for you to manage on a regular basis, while having exposure to the investments you want. For some people, that can be done with 1 or 2 ETFs. For others, it’s more like 4-5. So it really comes back to where you want your money to be invested.
What I will say is it’s much better to start off slowly and simply. So you might want to start with just one or two main ones and go from there. More is definitely not better. So choose sparingly, and make sure there’s a very good reason for adding each one to your portfolio.
Each one adds extra paperwork, tax admin, mental strain + ongoing management. Might not seem like much at first, but I’ve been there before and ended up with a messy portfolio that I later trimmed down to make it nice and simple, and much happier for it.
Hope that helps.
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ReplyOwen Rask
INVESTMENT ADVISER
about 2 years ago
Hey Emma!
That’s a great question — and one I field a lot from Rask Core members.
(Side note: as always, the information included in comments here are strictly general in nature. This is important because as the answers will suggest, it’s personal.)
Lump sum. At Rask, we general advice is to avoid lump sum investing as the timing of it can be very risky. To minimise regret, we advocate for a dollar-cost averaging approach (little bits, lots of times, starting small, over many years).
Number of ETFs
As Dave said, I find this is what an investor feels comfortable with. And the approach will change over time — that’s okay.
Let me offer an example…
In past we had members at Rask who joined more than one of our memberships (e.g. the one of shares, one for ETFs… etc.) and what they would do is buy literally everything we researched over 1-2 years. At first it seems great. «Oh, that stock or ETF sounds really interesting — I’ll buy it.» Do that for two years, though, and across two memberships, and they end up with 10-20 ETFs and 20-30 stocks.
In other words, a LOT of positions and lots of complicated tax returns.
It’s a natural reaction and I think this goes back to the old stock market adage that ‘to be diversified, you need 30 different stocks’. This comes from some studies showing after 30 different positions the benefit of more diversification wears off.
However…
As the mighty Dave Gow alluded to (below/above) the invention of ETFs changed the game — because some index fund ETFs (e.g. VAS, VGS, A200, IVV, VIF, IAF, NDQ, etc.) — can sometimes offer exposure to dozens or even hundreds of different investments with one position.
For example, Vanguard VAS has ~300 different Aussie shares inside of it, whereas IVV has ~500 US stocks. Then there are the .css-1ihet4v{box-sizing:border-box;margin:0;min-width:0;font-size:14px;line-height:22px;font-weight:400;-webkit-transition:all 0.3s ease;transition:all 0.3s ease;display:inline-block;color:var(--theme-ui-colors-primaryDark,var(--primaryDark));margin-bottom:16px;}.css-1ihet4v img{max-width:100%;} Show more.....
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Replynick nicolaides
PEARLER
11 months ago
Hi Rowland
Lump sum is going to be one of those weird ones where it is totally relative to you and your situation. So I’ll try and help here in general terms as best I can!
In general terms, a lump sum will be a relatively large, one-off amount. So, think of a lump sum as 100% of whatever amount you’re considering.
If you took your 100% and split that up into smaller parcels and invested that over weekly, monthly, quarterly, etc., most people would not call that lump sum investing.
To complicate matters, if you were spreading out things over a longer period, you could have recurring lump sums. For example, and not everyone will agree with this, but if you saved up and invested once a year, then that once a year could be considered a lump sum even though it’s somewhat recurring.
If you want to do some more reading, our friend Dave at Strong Money wrote these two great pieces:
Sorry if this isn’t as simple as a yes/no answer, but I hope it helps.
Nick
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