The Short Answer: 15 Maximum
The Long Answer: It Depends
The ideal number of funds in your portfolio depends on your investment goals and risk tolerance. However, as a general rule of thumb, we recommend no more than 15 funds.
Why?
If your portfolio holds 20+ funds then an overhaul is definitely in order. Firstly, you will be struggling to keep track of them all.In a situation when markets start tumbling there are simply too many decisions to make, fund by fund.
You must diversify. But there are limits
The main benefit of holding funds is diversification – not being unduly exposed to just one holding if it goes bust.
Imagine you had a discretionary portfolio full of individual shares and bonds, rather than funds. You would probably have around 30 individual holdings, perhaps a bit more but not much.
In contrast, each individual fund in your portfolio will usually hold between 50-100 individual investments. Even if you held just 3 funds (an easy number to monitor), the total of underlying shares is probably 150-300 – that’s a lot of diversification.
Why Not a Portfolio of 3 Funds?
Why not indeed.
A significant proportion of our users focus largely on the UK stock market. In such a situation, there is absolutely no point in having 15 funds or anything close.
If you focus solely on stock markets, but also like an overseas exposure, this could stretch to 6 funds.
For example, you could combine our Dynamic UK Portfolio with the Dynamic World ex-UK Portfolio.This would give you 6 funds in total, 3 from the three main UK sectors and 3 from the main stock market sectors from around the world excluding the UK.This is our 50:50 portfolio, which you can seehere.
To simplify things further you could follow our Dynamic Global portfolio, which selects the top 3 funds from the main stock market sectors including the UK.
Using the tools on FundExpert you can createmany different portfolios.Have a look at theDynamic Portfolio Libraryfor some ideas of how to begin.
How Much Should You Invest In Each Fund?
Let’s look at this another way. If you have a portfolio of £100,000, I would strongly recommend your minimum fund size is 5% of your portfolio, in this case £5,000. A holding any smaller size is simply not going to have a significant impact on your overall portfolio.
If you're investing larger sums, should the number of funds increase alongside your portfolio value e.g. £1m in 10 funds and £2m in 20 funds? This doesn't make much difference and you get a huge amount of diversification from investing in funds.
We have clients with our sister company Dennehy Wealth with £100,000 or more in individual funds as part of a larger portfolio. But do note that there are liquidity risks in certain funds and sectors, so do be aware of that when building your portfolio. Liquidity risk is the risk that you won't be able to sell your shares in a fund quickly or easily. This can happen if the fund is illiquid, meaning that there are few buyers or sellers.
As always, keep your questions coming on this. Get in touchhere.
ACTION FOR INVESTORS
- There is no magic number of funds to hold in a portfolio...
- ...but 15 is enough to diversify across sectors...without becoming unwieldy.
- And just 3 funds might be sufficient.
- If you hold funds on FundExpert, log in toMy Accountnow to check your holdings.
- If you’re still not sure what’s best for you, it’s always a good idea to consult with a financial adviser.
If you are seeking further investment support, or have any wider financial planning needs, please visit//dennehywealth.co.uk/
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