Great question.

I know this is controversial, and it changes based on your circumstances, but there is, in my opinion, a right answer.

The aim of this article is to help you discover yours.

This article assumes you are investing, or are interested in investing, the long-term way – incremental amounts in diversified portfolios.

If that isn’t you, then this article isn’t for you.

It’s also worth mentioning that no investing strategy can ever fully shield you from risk. Keep that in mind as you decide on the number of ETFs for your portfolio.

First-time long-term investors

If you haven’t invested before , I’d start with one ETF.

Why?

Analysis paralysis.

The BIGGEST drag on everyday Aussies’ share investments is typically the time taken between when they decide they want to start investing to when they actually commit to investing.

The reason for this is two-fold:

1. Inflation is eroding your savings
2. Compound interest isn’t growing your savings

So, taking steps that allow you to get started, build confidence, and begin investing material amounts of your money sustainably for the long term are the right steps, I believe.

Simply put, getting started is key. Choose one investment and get going. And an ETF is a great starting option because they allow you to make a highly diversified investment by just buying one share.

In case the acronym is new to you, ETF stands for exchange-traded funds – which are investment funds that hold collections of stocks, bonds, and/or other assets. These funds aim to copy the performance of a particular market segment, such as the Australian Sharemarket (ASX 200), US Sharemarket (S&P 500), or Global Sharemarket (MSCI World Index).

If you’re ready to invest in shares, just pick an ETF that tracks a market segment you’re comfortable with and start there. Here’s a list of Pearler’s most popular ETFs and a guide on how to choose the right ETF to get you started.

Remember to keep investing every week/month/quarter regardless of what the market is doing. This is key. Incrementally investing over the long term is a proven strategy is a proven strategy that outperforms over 90% of professional investors. . It’s also the way to ensure it takes up as little time and emotional effort as possible. You on’t need to stress about getting everything perfect to start – you can adjust as you go. Getting started is what counts.

You can automate everything, by the way.

Beginner long-term investors

Have you made an investment or two, but aren’t investing regularly yet? Perhaps you’re considering it, but still have some doubts about sharemarket investing? Then, to me, you’re in this category.

One ETF is still the right number for you.

You don’t need to over complicate it. Build up your confidence and consistency first; that’s what really matters. The impact of optimising your ETFs is negligible compared to building the habit of investing consistently. Typically, those with the strongest habits sync their investing cycle with their pay cycle – focus on this first!

If you’ve already made some investments in shares that aren’t ETFs, or aren’t the ones you want to invest in long term, you don’t need to rush to sell them – that’s not what I’m suggesting!

What I AM suggesting is that you pick and stick to one ETF that you invest in the right way going forward: incremental amounts, consistently, for the long term.

How to do this? Once again, here’s a list of Pearler’s most popular ETFs and a guide on how to choose the right ETF to get you started.

Don’t overthink it – honestly, any of the top five most popular ETFs can be a great starting point. If you keep investing in these for a few years without investing in anything else, you’ll have fulfilled this strategy. Then, as you learn more about investing and ETFs and become more confident, you can easily layer-in additional ETFs and start to get fancy.

As I mentioned above, analysis paralysis is the silent killer when it comes to investing returns; investing consistently in a diversified, low-cost way is what counts. All of Pearler’s top five ETFs tick these boxes (as well as many others).

Do yourself a favour and make it a habit ASAP.

Even better, automate your investing entirely, so you don’t even need to think about it.

Experienced long-term investors

If you’re investing incremental amounts in one or more ETFs every week, month, or quarter, and have been doing so consistently for at least a year, then this is you.

You get the true essence of long-term investing, the importance of dollar-cost averaging , and the value of personal finance automation.

You’re no longer battling investing doubts or experiencing analysis paralysis, and so it’s time to consider adding more ETFs, if you wish.

Don’t get me wrong, one ETF can still be the right number for you, but also it may not be. Let me explain.

Until you’re at this point, optimising for anything other than creating the habit of investing consistently in a low-cost, highly diversified ETF does not make sense. Creating this habit creates 80% of the value.

But once you pass this point, the simplicity of just owning one ETF may not continue to outweigh the benefits of owning multiple ETFs. Alternatively, you may decide you’d like to change to a different ETF.

Most experienced investors who only invest in one ETF invest in a diversified ETF, which is a combination of multiple ETFs. When you invest in a Diversified ETF, your investment then flows through into the underlying ETFs – typically more than five!

Long-term investors often frame diversified ETFs as a one-stop shop. They are typically used by investors who like to streamline their investing as much as possible, and experienced investors who invest in these don’t need to invest in anything else because they’re so diversified. The trade-off is that their management fee is slightly higher than their underlying ETFs (0.2% vs 0.1%, for example). VDHG and DHHF are the two of the most popular diversified ETFs on Pearler.

However, do you want to have more control over the specific market segments you’re invested in and how much you’ve invested in them? If so, it makes sense to use specific market segment-focused ETFs. You may even want to layer-in a thematic ETF that focuses on a cause that you care deeply about (be warned – picking a thematic for “returns” is a form of active management and active investors, including professionals, consistently underperform the market; layering in causes you care about regardless of returns is a different beast).

If this is you, then owning three, four, five or more ETFs could make sense depending on how complicated you want to make your strategy.

As above, though, the thing that matters most is that it’s not so complicated you can’t invest consistently. Have clearly defined weightings for each ETF and a clearly defined strategy for rebalancing, then automate it.

Here’s also a deeper-dive on the frameworks I used to optimise my own portfolio, if you’re interested in nerding out – experienced investors only! If you take one thing from this article, let it be this: don’t get caught by the analysis paralysis.

## In summary If you’re a first-time long term investor, one ETF is all you need to get started - overcome analysis paralysis! If you’re a beginner long term investor, one ETF is still all you need - focus on building your investing consistency first; that’s what really matters. The impact of optimising your ETFs is negligible compared to building the habit of investing consistently. If you’re an experienced long term investor, more than one ETF could make sense, but also one ETF could still be all you need - don’t over complicate things unnecessarily. And regardless of how experienced you are, make sure to automate your strategy. Happy investing,

Kurt