How Many Investments Should You Own?
Investing is a crucial component of achieving financial security and building wealth over time. However, one common question that both novice and seasoned investors grapple with is: How many investments should you own? While there isn’t a one-size-fits-all answer, several factors can guide you in determining the optimal number of investments for your portfolio.
Understanding Diversification
Before delving into the specifics of how many investments to own, it’s critical to understand the concept of diversification. Diversification is a risk management strategy that involves spreading your investments across various asset classes, sectors, or geographic regions to minimize the impact of a poor-performing investment on your overall portfolio. Essentially, the goal is to not put all your eggs in one basket.
A well-diversified portfolio can help smooth out returns and reduce volatility over the long term. However, how diversified should your portfolio be?
The Right Number of Investments
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Quality Over Quantity: While diversification is essential, owning a vast number of investments can lead to over-diversification, which dilutes potential gains and can make managing your portfolio cumbersome. Most financial experts suggest that a well-balanced portfolio can consist of anywhere from 10 to 30 different investments. This range allows you to maintain sufficient diversification without losing focus on each individual asset.
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Asset Classes: Consider including different asset classes in your portfolio, such as stocks, bonds, real estate, and commodities. Each asset class behaves differently under various economic conditions, which can help stabilize your returns. A mixture of these can reduce risks associated with a single asset class’s performance.
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Investment Strategy and Goals: Your investment goals and time horizon play a significant role in determining how many investments you should own. Are you investing for retirement, a child’s education, or short-term gains? Longer-term investments may allow for a more concentrated portfolio, while shorter-term goals usually require a more extensive diversification strategy.
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Risk Tolerance: Your personal risk tolerance should also influence the number of investments in your portfolio. If you are risk-averse, you might prefer a greater number of diversified investments to mitigate potential losses. Conversely, if you are willing to accept more risk for a chance at higher returns, you might opt for a smaller, more concentrated portfolio of higher-risk assets.
- Market Conditions and Economic Factors: The current economic landscape also plays a role in your investment decisions. In times of economic uncertainty, investors might prefer to hold more diversified positions to shield themselves from market volatility. Conversely, when the market is stable, an investor may be more inclined to take calculated risks and invest in fewer stocks that they believe will outperform.
Regular Portfolio Review and Rebalancing
Investing is not a "set it and forget it" approach. Regular portfolio review and rebalancing are essential. Life circumstances, market changes, and your financial situation can influence how many investments you should own. As you approach different life stages or your financial goals shift, you may need to adjust the number and type of investments in your portfolio.
Conclusion
The question of how many investments you should own does not have a definitive answer; it varies based on individual circumstances, investment goals, and risk tolerance. Aiming for a diversified portfolio that includes a manageable number of quality investments is generally a prudent strategy. Ultimately, the key is to find a balance that aligns with your financial objectives and allows you to navigate the complexities of the investment landscape effectively. By understanding the principles of diversification and regularly assessing your portfolio, you can make informed decisions that will help you achieve long-term financial success.
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I saw a family trust holding 50 tickers. Complexity is job security for these guys
Rob, Gifting your book “Retire Before Mom & Dad” to my two daughters. Great principles that are timeless, thoughtfully explained, and gratefully not gimmicky- as most others seem to be. I can safely hand this to my kids and not worry about them being pulled into a seminar to drain them of their future savings!
Question: Curious as to why you were once big on small caps but no longer are. I ask because I have been long on small caps (admittedly lost out to S&P previous few years) but am questioning my strategy. In 401K I’m about 60% SC, 15% LC, rest divided into MC & cash. My strategy was based on playing catchup to starting retirement savings late in life. Looking at 15 years to retirement and cannot afford too many more opportunity losses. This is why I’m gifting your book to my kids! I want them to know that their parent’s situation can be avoided with good investment decisions. My parents didn’t teach me anything about money. Thanks again!
Why would you want to hold different types of investments for different accounts? Around minute 10 of the video you mentioned that you prefer having:
* Taxable Accounts – No bonds. Stocks and Cash
* Roth Accounts – No bonds. Only stocks
* Traditional IRA/401K – Bonds ok
What is the reasoning behing this? Also, do you also change the type of fund (large/small/mid-cap and/or value/blend/growth) for each type of account?
Hi Mr. Rob Berger ,
Thank you for sharing your insights to the world – I’m sure many more than the few appreciate your knowledgeable sharing and caring !
Riddle me this Batman,
You have 3 Million in Retirement savings, 2 Million in no taxable Roth IRA’s and 1 Million in a taxable 401k.
Also 2 Million in Realestate property…
How would you go about planning a retirement portfolio?
Why not keep bonds in Roth? If not, not as diversified.
So, it's 14 basis points for VASGX. If you add up the expense ratios for setting up each fund on its own (the 4 funds within VASGX), you come up with a figure that's higher than the single expense ratio for VASGX alone. Does that really make the total fees come out LOWER for setting up the individual funds separately? I'm not sure just how the math works, but just wondering.
At 45, I just VTSAX & Chill.
Rob, I don't like bonds. I just don't. I prefer dividend funds or ETFs, some of which you reviewed, like SCHD. In bad times, like 2022, it lost less than bonds. A lot less. In good years it made more than bonds. A lot more. I do like blended funds like VBIAX and Wellington. This breaks the rules a bit. Love S&P and Total Stock market index funds and some specialty finds line Vanguard information technology (VGT).
Rob, regarding your Plan Vision comment, is it duplicative or worth the additional expense for Plan Vision if already subscribed to New Retirement? Are they similar? Thanks, and great video.
FWIW, LifeStrategy Funds do daily rebalancing, so no opportunity for the portfolio to "drift" at all from the intended allocation. Always selling the daily "winner(s)" to buy the daily "loser(s)."
Can you please make a video or discuss position size of an investment? Because you can all the great investments you want, if they aren't large enough over 20 -30 years they won't do you much good.
Recently came across an interesting Roth conversion strategy. The idea was to make a Roth conversion and also make an investment in an oil and gas limited partnership in the same year. Special incentives for the LP (intangible drilling costs) allow for an immediate tax deduction in the range of 60-80% of the investment, offsetting or negating the Roth conversion taxes. The catch is, only "accredited" investors can join these LPs and then there's finding one you trust.
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You have a way of laying out material that makes this less daunting for people – demystifying the process. Folks like you helped me to have the guts to stop using a 1.5% manager. I appreciate it.
Love your videos, however in one of them you suggest M1 Fianace. They charge a significant fee!
The best investment strategies for cash you are waiting to deploy or wanting to hold are simple. Follow the S&P 500, Invest in $VOO or $SPY and you’ll outperform most investors if you DCA into these ETFs. Doing this i have grown my portfolio to $800k.
I have just 2 ETFS in my ROTH IRA – VTI (90%) and VEA (10%). My time horizon is several years. I am due a modest pension, so I currently do not have any bonds. I may add some short-term bonds once I am in retirement.