Q&A: How Many ETFs Do You Need for a Well-Rounded Portfolio?

Q. How many ETFs do I need to own to have a balanced and diversified portfolio? – C.L. in Plano, TX

A. One of the common investing fallacies is that the number of holdings within your investment portfolio should increase as your portfolio’s value increases. This is wrong. Why? Because having a well-rounded investment portfolio is never determined by how many ETFs a person owns, but rather, making sure the funds that you own are invested in asset classes that are distinctly different from each other.

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For example, a portfolio that holds just five ETFs in different investment categories like international stocks (CWI), U.S. stocks (SCHB), commodities (USCI), bonds (BNDX), and global real estate (RWO) would definitely be more balanced and diversified versus a portfolio that owns 10 large cap stock ETFs (VV) and nothing else. Put another way, a well-rounded portfolio can achieve diversification by owning just a few ETFs that are distributed across a variety of different asset classes. The key is always variety, not quantity.

In summary, regardless of whether your investments are worth $1,000, $100,000, or $100 million, you don’t need a complicated portfolio with lots of holdings to achieve a well-rounded state. Just a few carefully selected ETFs in different areas can and will get the job done.

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