How many funds to have in a portfolio? (2024)

FAQs

How many funds to have in a portfolio? ›

A commonly cited rule of thumb is to own between 10 and 20 mutual funds, but the actual number will vary depending on your individual circ*mstances. Too many funds can lead to unnecessary over-diversification and overlap. There's really no point in owning, say, two index funds that invest in the same index.

Wood at Quilter Cheviot says: “The number of funds in a portfolio can range from 10 if you are just investing in global equities, to around 30 if you are investing regionally and looking to balance the risk and approach taken.”

Cash and cash equivalents can provide liquidity, portfolio stability and emergency funds. Cash equivalent securities include savings, checking and money market accounts, and short-term investments. A general rule of thumb is that cash and cash equivalents should comprise between 2% and 10% of your portfolio.

This is a rule that aims to aid diversification in an investment portfolio. It states that one should not hold more than 5% of the total value of the portfolio in a single security.

The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 or more stocks, particularly across various sectors or industries, is much less risky than a portfolio of only two stocks.

Diversification ensures you get the best returns, or so goes common advice. Rohin Pagdiwala, CFP and founder of Pagdiwala Investments, said a portfolio can achieve sufficient diversification with 7-10 funds. Asset allocation should determine the selection of funds, he said.

Bottom line. The three-fund portfolio is a simple investment strategy that should meet the needs of most investors. It offers a diversified portfolio at a low cost and allows you to customize the asset allocation based on your investment goals and risk tolerance.

The strategy is based on:

Portfolio management with 70% hedge and 30% spot delivery. Option to leave the trade mandate to the portfolio manager. The portfolio trades include purchasing and selling although with limited trading activity.

The breakdown for the 60/20/20 budget looks like: 60% of your income is on living expenses – rent/mortgage, groceries, utilities and transportation. 20% of your income on financial goals – debt reduction, emergency fund and investments. 20% of your income on discretionary spending – entertainment, travel and eating out.

Rule No.

1 is never lose money. Rule No. 2 is never forget Rule No. 1.” The Oracle of Omaha's advice stresses the importance of avoiding loss in your portfolio.

How many funds is too many in a portfolio? ›

How many is too many? Investing in dozens of funds not only increases the risk of duplication but could also mean you're paying more in fees. By investing in fewer funds – or even just one fund, as we discuss below – you're more likely to be able to control costs.

If you are a moderate-risk investor, it's best to start with a 60-30-10 or 70-20-10 allocation. Those of you who have a 60-40 allocation can also add a touch of gold to their portfolios for better diversification. If you are conservative, then 50-40-10 or 50-30-20 is a good way to start off on your investment journey.

Among the 47 stocks Berkshire Hathaway holds, the top 10 represent about 84% of the company's holdings. Here's a rundown of Buffett's 10 largest holdings based on Berkshire Hathaway's most recent filings, including its 13F filing from May 15, 2024.

Private investors with limited time may not want to have this many, but 25-35 stocks is a popular level for many successful investors (for example, Terry Smith) who run what are generally regarded as relatively high concentration portfolios. This bent towards a 30-odd stock portfolio has many proponents.

One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement.

A good strategy to follow is to allocate around five percent of your portfolio to cash, although some financial planners might recommend up to 10 percent or 20 percent depending on your needs, life stage and risk profile.

While institutional investors and endowment funds often invest much bigger chunks of their portfolios in real estate (including both public and private debt and equity securities), I'd argue that most individual investors should keep their real estate exposure limited (which Morningstar defines as 15% of assets or less ...