too many ETF in a portfolio is a mistake

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Can anyone please explain why having too many ETFs in a portfolio is a mistake. I read this in many different places but I still don't get it.

The only point I get is that having too many makes the picture more blurred and consequently viewing and assessing the portoflio is fit-for-purpose more difficult.

 

I understand that the larger the number of ETFs in the same portfolio, the higher the chance some of them are correlated, so more ETFs does not mean more diversification. Ok, this is not an advantage. But I don't see a disadvantage either.

 

I also read more ETFs means higher cost. This I really don't get it. Many providers charge percentages of the total sum. So in this case the number of ETFs is irrelevant, isn't it...

 

Thanks,

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I can't tell you the rhyme or reason but I keep about 10% of my portfolio in ETF's. My financial planner is the brains behind that. They all are doing well, BTW.

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I think since ETFs are buy-and-hold investments, you should aim for diversity at as low as possible fees.

The most widely recommended mix is 2 ETFs 70:30 world: emerging markets

I think if you go beyond those, you fill your depot with ETFs with higher fees and no further diversification.

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15 hours ago, Gambatte said:

I also read more ETFs means higher cost. This I really don't get it. Many providers charge percentages of the total sum. So in this case the number of ETFs is irrelevant, isn't it...

If you compare it to holding individual stocks the cost will be higher. But still lower than actively managed funds, of course. What I don´t like about ETF´s is that you can´t buy them a a discount to NAV (in contrast to CEFs which are sometimes trading at discounts of up to 40%).

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Not really my area of expertise but isn't the answer "it depends" in the same way as it would be for mutual funds? 

 

If you hold a widely diversified ETF, akin to a tracker fund, then holding 2 will not really diversify you any more.  As said above, 70:30 split across World and emerging markets woudl cover a lot of bases.

 

But if you hold ETFs focussed on Cash, Bonds or a particular sector, then holding one in each would create that diversification. 

 

So, you decide where your risk level sits and choose you investment vehicle and diversification accordingly, or am I missing the something?

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There is no reason having too many ETFs is a mistake (as you correctly analyze). I have quite a few ETFs in my portfolio because new & better ETFs came onto the market, but I didn't want to sell my existing ETFs because I didn't want to pay additional transaction costs, and also wanted to defer paying taxes. The only downside is potentially higher transactional costs when you liquidate (because instead of selling it in one transaction, you have to make many transactions), but you probably want that anyway, so it's not really a disadvantage.  

 

Proactively buying many different ETFs is probably not very useful (because you aren't diversifying, and just increases your admin costs) and should be avoided, but if you end up with many ETFs, I can't see why that's a mistake.

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12 hours ago, dampstew said:

 and just increases your admin costs

This is exactly a point I don't get.

The admin cost of buying or holding or selling is, for many platforms, a percentage of the total volume. So buying one ETF for 1000 eur, or buying two ETFs each 500eur, have the same total cost. Same for holding or selling.

Why "increase the admin cost" ?????

 

 

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14 minutes ago, Gambatte said:

This is exactly a point I don't get.

The admin cost of buying or holding or selling is, for many platforms, a percentage of the total volume. So buying one ETF for 1000 eur, or buying two ETFs each 500eur, have the same total cost. Same for holding or selling.

Why "increase the admin cost" ???

 

 


If you have a broker that operates on percentage and is price worthy please tell as I’m yet to find one. On the other hand, I’ve traded on flatex for years and since then on onvista: both are fixed cost brokers. You pay 5 to 7 euros per transaction whether selling or buying independent of volume, or (onvista) one euro per sparplan of max €500/month (meaning a €1000 sparplan costs €2). So in your example I’m doubling my transaction costs by holding two equivalent ETFs.

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@Gambatte I meant increase the admin cost for you. Like you said, it's potentially more work to get a good overview of your portfolio. You'll also get more "mail" (when ETF changes hand for example). Chances are also that the more ETFs you buy, the more you buy ones that are inferior (higher TER, lower liquidity, higher spread etc.). So it's definitely not advisable to collect a lot of ETFs that share underlying assets.  

 

But your main point is correct - if you buy a 1,000 EUR ETF with a TER of 0.2% vs. 2x 500 EUR ETF with also a TER of 0.2%, your costs are the same. You probably paid more transaction costs for the 2x option, but that's it.

 

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there is no point buying more than a msci world ETF! 

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@mtbiking

Many broker charge a percentage of the buying volume, typical 1.5%, when you buy ETFs through their Sparplan. 

I'm with Comdirect, simply because that's where my current account is, indeed 1.5% when buying and nothing else.

Trade Republic does not charge anything!

 

@mtbiking are you into cycling? My lucky day today, just learnt i get a place st the next Maratona dles Dolomites, 140km 4000m. Extremely happy.

https://www.maratona.it/de/138km

Just how the hell do I train x it? Here in flat boring Hamburg??😬😵😭🤔😳☹️😫

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7 hours ago, Gambatte said:

@mtbiking

Many broker charge a percentage of the buying volume, typical 1.5%, when you buy ETFs through their Sparplan. 

I'm with Comdirect, simply because that's where my current account is, indeed 1.5% when buying and nothing else.

Trade Republic does not charge anything!

 

@mtbiking are you into cycling? My lucky day today, just learnt i get a place st the next Maratona dles Dolomites, 140km 4000m. Extremely happy.

https://www.maratona.it/de/138km

Just how the hell do I train x it? Here in flat boring Hamburg??😬😵😭🤔😳☹️😫


Onvista is much cheaper than comdirect for my trade volumes. And yeah, trade republic is cheaper but I’m guessing that after hitting forty I got conservative.. all these new free brokers that are only accessible per app etc sound a bit dodgy to me, in the sense that there must be a catch somewhere. But probably I’ll change my mind sometime, onvista is my fourth broker in 15 years.
 

yep, I’m very into cycling and that’s mostly why I moved to Munich in the first place. Congrats, that’s great, I was cycling in the region this September, love the dolomites. Particularly for corona and lockdowns with small children at home I bought in March a wahoo smart core trainer to use with my racing bike and Zwift. They’re sold out right now but great for your situation. Today I “climbed” 1000 hm on my lunch break. It’s realistic enough.

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