There are a lot of questions when it comes to how many ETFs should I own. And, the answer is, it depends. It depends on your investment goals, your risk tolerance, and how much time you have to devote to managing your investments.
In this article, we will explore some different scenarios and help you figure out how many ETFs might be right for you.
What to consider before deciding how many ETFs you should own
Before even defining a specific number of ETFs that you should have in your portfolio, you need to be able to answer a few questions so you can assess your investor profile. Here are some of the main questions you need to ask yourself:
- Do you want to actively manage your ETF portfolio?
- Do you want your ETFs to be actively managed?
- How much time do you want to dedicate to your investments?
- How much do you know about companies and investing?
- Where do you want to invest?
- Do you want to invest in specific industries?
- How concentrated or diversified do you want your portfolio to be?
- Are you going to make regular contributions to your ETF portfolio?
- What is your investment horizon?
- What is your risk profile?
Do you want to actively manage your ETF portfolio?
If you want to actively manage your ETF portfolio, you will probably be choosing different ETFs and even more ETFs than the average investors. This means analyzing different holdings of each ETF and rotating between industries, and special ETFs depending on your investment strategy.
The main advantage of actively managing your ETF portfolio is that you will have more oversight over each individual holding, and you can also rotate positions within the portfolio. This could you help you to beat the market.
If your goal is to do this, it will require a lot more time, and you can either choose to have a diversified approach where you own several different ETFs, or a more concentrated approach, where you can own between 1 and 5 different ETFs.
Do you want your ETFs to be actively managed?
You will also have to decide whether you want your ETFs to be actively managed or passive investment vehicles. If you want to have a fund manager overseeing the individual ETF portfolio and adjusting it, you need to choose actively managed ETFs. Or you can just go with passive ETFs which are nothing more than index funds that are traded on exchanges.
Actively managed ETFs will require you to spend more time analyzing and researching the different holdings, and how the fund managers are adding or selling different stocks. If you do not want to spend a lot of time analyzing individual stocks, and ETFs the best is to avoid having too many actively managed ETFs in your portfolio.
How much time do you want to dedicate to your investments?
Deciding how much time you want to dedicate to your portfolio is also important. While some investors are happy to put all of their money in an index fund and add to it every now and then, some investors want to take a more active role.
This involves analyzing the different holdings in the ETFs they own, and even rotating different ETFs, or buying some when their price is lower. If you want to take more time to dedicate to your investments you can surely have more ETFs in your portfolio. If you do not want to spend a lot of time researching and analyzing businesses and portfolios, the best is to invest in a small number of passively managed ETFs.
How much do you know about companies and investing?
While you may want to spend a lot of time analyzing stocks, and how fund managers are building their portfolios, you may not know a lot about investing. If this is the case you are better off investing in passive ETFs and keeping your passive ETF portfolio down to just under 3 different passive ETFs.
Where do you want to invest?
There are some investors that want to take a regional approach to invest. They might want to invest just in European stocks, or Asian or even American. If this is the case, you may need to have more ETFs in your portfolio.
Do you want to invest in specific industries?
Investing in specific industries can also affect how many ETFs you have in your portfolio. If you want to invest in real estate or technology companies, you may need to buy ETFs that are focused on those industries.
How concentrated or diversified do you want your portfolio to be?
Concentration has a lot of advantages, but overall ETFs tend to be a very diversified way of investing. Even if you take a simple S&P 500 ETF, you are well diversified across 500 different companies. However, when you start adding too many ETFs your portfolio might become too diversified.
This is not always a good idea, because your upside becomes fairly small unless you are just investing in some of the best-performing industries, or regions of the world. You should also be aware that investing in several ETFs with similar themes, could mean you are either over diversifying or doing diworsification.
Are you going to make regular contributions to your ETF portfolio?
If you want to dollar cost average you can keep a portfolio of more ETFs, while lump sum investing works better if you are just targeting a few ETFs. Finally, value averaging also works better if you have fewer ETFs in your portfolio.
Should I buy ETF all at once?
Buying an ETF all at once is what is commonly referred to as lump sum investing, and it works very well if you are taking advantage of low prices in the market. When certain stocks and ETFs go down in price there could be an opportunity to buy undervalued ETFs. If this is the case you should buy them all at once.
If you are unsure this particular ETF is undervalued, or you do not have the required knowledge to research an ETF, it is better to dollar-cost average than to try to time the market.
What is your investment horizon?
You also want to consider your investment horizon. While some ETFs can be great investments in the short term, they are not the best to hold for long periods of time. Be aware that if you are investing for the long run, you want to keep a diversified ETF portfolio, that can compound over time.
This does not mean that you need to have a lot of ETFs in your portfolio, but their holdings should be diversified and not concentrated on one region or one industry.
What is your risk profile?
Finally, you also need to consider your risk tolerance. While some investors are comfortable with investing in just one industry, or one region, and can withstand the possible volatility, other investors are more risk-averse.
Is it good to have multiple ETFs?
Having multiple ETFs can help you diversify, and reduce the risk and volatility of your portfolio. It also allows you to invest in themed ETFs, and take advantage of trends, and even opportunities in the market. Overall it is good to have several ETFs, but you want to avoid having more than 10. The reason is that ETFs are already very diversified, and if you diversify too much, your returns can be lower.
How many ETFs is too many?
Having more than 10 ETFs is too many for most investors because your portfolio will be too diversified to achieve any meaningful returns. You obviously want to diversify your holdings, but you do not want to over diversify, to the point where your upside on a specific stock or sector is so small that it won’t be reflected in your portfolio.
It also depends on your individual circumstances. If you don't know the general industries that the ETFs in your portfolio track, you might want to consider reducing the number of ETFs you own.
Similarly, if you find that you are spending a lot of time managing your investments, it may be a sign to reduce the number of ETFs in your portfolio. Remember, it is important to strike a balance between diversification and simplicity. One of the benefits of ETFs is that you don't have to spend a lot of time managing them, so don't defeat the purpose by owning too many!
Is 15 ETFs too much?
Yes, 15 ETFs sounds like an excessive number but it all depends on the specific ETFs you are investing in. Overall, having 15 ETFs means your portfolio will be too diversified, and this makes it difficult to achieve any sizeable returns.
How many of the same ETF should I own?
The amount of the same ETF you should own depends on your investment goals. If you are investing for the long term, you might want to keep it simple, and just invest in one ETF. On the other hand, if you are looking to gain exposure to different industries, or want to take advantage of short-term opportunities, you might want to consider investing in a few different ETFs.
If you are just starting out investing, you might want to consider consistently investing in the same ETF. This can be a good way to get your feet wet and learn the ropes of investing without having to worry about diversification.
Investing in the same ETF can help prevent you from being overwhelmed by all the different options available.
Should you invest all your money in one ETF?
Investing all your money in one ETF is less risky than investing all in one stock. This is because an ETF tracks a basket of assets, which means that your investment is spread out over many different companies.
This diversification can help protect you from the volatility of the stock market. However, even though investing in a single ETF is less risky than investing in one stock, it is still risky if the ETF is managed poorly. It can also be a bad idea to invest all in one ETF if the fund tracks only one industry.
For example, if you only invest in an ETF that tracks the tech industry, and the tech industry crashes, your investment will go down with it. If the ETF you'd like to invest all in is something like the S&P 500, which is a broad index of large US companies, it might be a good idea.
This is because the S&P 500 includes companies from many different industries, so you will be diversified if one industry crashes.
What percentage of my portfolio should be in passive ETFs?
Some investors such as Warren Buffet suggest that the average person should stay away from stocking picking. This means that in his perspective, 100% of your stock portfolio should be in index funds. However, there is some value to picking stocks.
For example, if you have done your research, it might make sense to invest some percentage of your portfolio in that stock. The percentage invested in other assets other than ETFs should be determined by sound judgment and not emotion.
If you don't care about stocks but understand the benefits of investing, then a 100% ETF allocation might make sense. If you are passionate about stock market investing, then it would not hurt to allocate some percentage to stocks. This can also help you learn more about business practices as you have some money on the line.
The percentage of your portfolio that should be in passive ETFs really depends on your investment goals and risk tolerance. If you are more conservative, you might want to have a higher percentage in ETFs.
If you are more aggressive, you might want to have a lower percentage in ETFs. A good starting point might be to keep 80% of your portfolio in ETFs and 20% in stocks. This will provide some diversification and allow you to participate in the growth of the stock market.
Remember, there is no perfect allocation that we can recommend as each person is different. Having a strong sense of self-awareness will help guide you to answering the question, "What percentage of my portfolio should be in ETFs."
Diversified ETF portfolio example
An examples of a diversified ETF portfolio would be:
- 60% - S&P 500 (VOO)
- 10% - Tech Sector (XLK)
- 10% - Consumer Staples (VDC)
- 2.5% - Global Water (CGW)
- 2.5% - Bond/Fixed Income (BND)
- 2.5% - Global Real Estate (REET)
- 2.5% - Commodities (DBC)
- 5% - International Companies (VXUS)
- 5% - Emerging Markets (MSCI)
With this allocation, you are diversified across different asset classes and sectors. This can help minimize the risk of your portfolio as you are not putting all your eggs in one basket. The above portfolio is just an example and is not meant to be taken as investment advice. It is just a visual representation of how you can construct a diversified ETF portfolio.
When constructing your own portfolio, you will need to consider your investment goals and risk tolerance. You will also need to rebalance your portfolio from time to time as the allocation will change due to market conditions.
How many stocks and ETFs should I own?
You should not own stocks if you are not willing to research individual businesses and value them. If you want to start investing in individual stocks, the best is to keep an ETF portfolio and leave 10% of your portfolio to buy individual stocks.
As times goes on and your become better at picking individual stocks, you can assign a larger percentage of your total investment portfolio to stocks, and start reducing the weight of ETFs.
What percentage of my portfolio should be in ETFs?
Keeping 90% of your portfolio in ETFs is the best approach for inexperienced investors who are not able to pick stocks. This percentage could even be 100% if you do not want to take an active role in managing your investments.
As you get better at picking individual stocks, you can start reducing the weight of ETFs.
How often should you buy ETFs?
You should not buy ETFs too often, because you will incur transaction costs each time you buy or sell. In addition, it may be time-consuming to manually buy and try to catch drips. However, other conditions make it favorable to buy ETFs frequently.
For example, if the brokerage account does not charge commission fees, and if there is a way to auto-invest a fixed amount each month.
This way you will be dollar-cost averaging into the position, which can help smooth out some of the volatility. The exact answer is difficult to determine. It all depends on your specific circumstances and financial goals.
How much to invest in ETFs per month?
The best approach is to define a percentage of your income that you want to invest every month, and make weekly or monthly contributions to your ETF portfolio based on that amount. This allows you to constantly invest, and even take advantage of lower prices, which lowers your cost basis.
To determine how much to invest in an ETF per month, you will also need to consider your investment goals and risk tolerance. Your monthly salary and living expenses should also be taken into account.
If you are looking to grow your wealth quickly, you might want to consider investing a larger sum of money each month. On the other hand, if you are more patient, you might want to invest a smaller sum of money each month.
This can leave you with more spending money or cash liquidity for other investments. It is also important to consider how much you have saved up and how many streams of income you have.
If you have a lot of money saved up and multiple streams of income, you can afford to invest more money each month. However, if your income stability is unknown and it is your only source of income, you might want to invest less each month.
This will allow you to save some money each month, which will provide a cushion in case your income suddenly decreases.
Will ETFs make you rich?
While ETFs can help you to make money, especially over the long run with compounding, it is difficult to make a lot of money with ETFs. Unless you are obviously able to pick an industry or a region or a theme ETF that increases in price a lot.
How Many ETFs Should I Own?
If you are looking for more immediate diversification, you might want to consider investing in multiple ETFs. This will allow you to spread your risk across different asset classes and sectors. However, you also want to avoid having 20 or 30 ETFs, because it dilutes your investment portfolio too much.
It is important to remember that every investment has risk, even if you own 30 ETFs.
So, make sure to do your research and invest only what you are comfortable losing. The answer to this question also depends on the individual investor.
Some investors may feel comfortable owning just one ETF, while others may want to own multiple ETFs. It depends on what you want to achieve with your investment and how much risk you are willing to take.