How many funds?

[lilBob]

Is there any advantage to owning 2 funds vs 12 ?

[FiveK]

Simplicity.

[Bama12]

No it's no advantage. I think it's a disadvantage.

I own 12 funds and it's very simple. I may add more in the future or less depends on how I feel.

I own 3 in my Roth that I can not buy in my 401k.
Vanguard Wellesley Income-VWINX
Vanguard Real Estate-VNQ
Vanguard Dividend Appreciation-VIG

I own one in my brokerage that I can not buy in my 401k and don't have room in my Roth for.
Schwab US Dividend-SCHD

I own 8 in my 401k because I want them.
Vanguard Total Stock Market-VTSAX
Vanguard 500 Index-VFIAX
Vanguard Value Index-VVIAX
Vanguard Small Cap Index-VSMAX
Vanguard Small Value-VSIAX
Vanguard Developed-VTMGX
Vanguard Emerging-VEMAX
Vanguard Total Bond-VBTLX

[Actin]

Too many funds creates a lot of overlap. It also dilutes your compounding because you're going to end up with a bunch of garbage funds. You're also market timing if you're trying to break VTSAX into components, which means you will inevitably trail the market

[Bama12]

Too many funds creates a lot of overlap. It also dilutes your compounding because you're going to end up with a bunch of garbage funds. You're also market timing if you're trying to break VTSAX into components, which means you will inevitably trail the market

I own 12 funds and have very little overlap.

How is that market timing? VTSAX has 25% in 10 companies. No it does not mean you will trail the market.

[Mike Scott]

Just adding more funds probably has little if any advantage but sometimes you have to choose from what is available and sometimes that means using more different funds than you really wanted.

[whereskyle]

Is there any advantage to owning 2 funds vs 12 ?

2

[rob]

Subjective... We own 6 different occurrences of an intermediate term bond index fund... Different buckets; his/her ira's of various types, a 403b and several 401K's (one active). It's silly and creates complexity but in the end, it's logically one block of $ with the same objective.

If you look at logical "funds", we have more than 6 because we don't do 3 fund but there is no overlap. If you look at physical funds... it's dozens due to needing to rebalance the whole by using little buckets.

[boosnark]

I just use two, one large cap blend and one for bonds. It makes it easy for me to rebalance and purchase additional shares in the right proportions.

[Doctor Rhythm]

Depends on what those two funds are and where they’re located (taxable, Roth, 401k, etc.). If you have both taxable and retirement accounts, it might be tricky to achieve and maintain your desired allocation while also minimizing taxes with just two funds.

[ruralavalon]

Welcome to the forum .

Is there any advantage to owning 2 funds vs 12 ?

Simplicity is better, there is advantage in holding fewer funds. Adding more funds does not necessarily increase diversification, you can get very good diversification with just 1-5 funds maximum.

For a one fund portfolio simply use a single target date fund or other balanced fund.

The wiki article "Lazy Portfolios" describes portfolios using just 2, 3, or 4 different funds. Also: forum discussion "Three-fund Portfolio"; and forum discussion "Jack Bogle-- two-fund portfolio"

[Nottooold]

Looks very close to Paul Merriman "Ultimate Buy and Hold" portfolio. I like it, very easy if you follow Paul's advice to limit rebalancing to once or twice a year. I have been using it for about 6 years.

[1789]

Even the professionals will have a hard time to rebalance a 12 fund portfolio

[grabiner]

The optimal number of funds is one fund per asset class in your allocation. Three funds work fine for most investors: one US stock fund, one international fund, and one bond fund. If you deliberately overweight some market segment, you may need an additional fund; for example, many Bogleheads hold additional funds to overweight small-cap and value.

You may be forced to hold slightly more than the optimal number if you have an asset class split across multiple accounts with different providers; for example, a US Government employee might hold US stocks both in the TSP funds and in a Vanguard IRA.

[BroIceCream]

Even the professionals will have a hard time to rebalance a 12 fund portfolio

Looks very close to Paul Merriman "Ultimate Buy and Hold" portfolio. I like it, very easy if you follow Paul's advice to limit rebalancing to once or twice a year. I have been using it for about 6 years.

Ditto with Nottooold, I've been using Merriman UBH for about 7 years. Not a problem to rebalance... not exaggerating... it only takes me 30 minutes, once a year to rebalance. There is no added complexity moving from 3 to 10. I'm blessed my hands have 10 fingers.

What drew me to this many funds was not Merriman. It was the Callan Periodic table.

Thanks to grabiner for the articulate, and less-dogmatic response.

The optimal number of funds is one fund per asset class in your allocation. Three funds work fine for most investors: one US stock fund, one international fund, and one bond fund. If you deliberately overweight some market segment, you may need an additional fund; for example, many Bogleheads hold additional funds to overweight small-cap and value.

[Bama12]

rebalance is overrated

[shess]

Is there any advantage to owning 2 funds vs 12 ?

For the longest time, I was more towards the 12 end of things. Then I decided I had no real rationale for it, so I radically simplified to 3-fund. The big difference I've found is that with a dozen funds, I felt like I was deluding myself about the advantages, but with the 3-fund I feel like each fund has a definite place. I feel that doing a good job managing a simpler layout works better for me than questioning whether I'm doing the right thing with a more complicated portfolio.

[grabiner]

Even the professionals will have a hard time to rebalance a 12 fund portfolio

I hold 11 funds for 12 asset classes, but I don't find rebalancing difficult, with all the computations done on a spreadsheet. The most important rebalance is between bonds and stocks, so when I do my annual rebalance, I buy or sell bonds in my employer plan to get the right amount, and also buy or sell US or foreign stocks. I don't try to get the subclasses in my taxable account perfect, but I rebalance with dividends and new money; if I am underweighted in foreign small-cap, then my next taxable investment goes into VSS (FTSE All-World Ex-US Small-Cap)

[bertilak]

rebalance is overrated

As is slice and dice.

[greg24]

I own 12 funds and have very little overlap.

VTSAX top ten holdings:

Apple Inc.
Microsoft Corp.
Amazon.com Inc.
Alphabet Inc.
Facebook Inc.
Berkshire Hathaway Inc.
Johnson & Johnson
Tesla Inc.
Visa Inc.
Procter & Gamble Co.

VFIAX top ten holdings:

Apple Inc.
Microsoft Corp.
Amazon.com Inc.
Alphabet Inc.
Facebook Inc.
Berkshire Hathaway Inc.
Johnson & Johnson
Visa Inc.
Procter & Gamble Co.
NVIDIA Corp.

VVIAX top ten holdings:

Berkshire Hathaway Inc.
Johnson & Johnson
Procter & Gamble Co.
UnitedHealth Group Inc.
JPMorgan Chase & Co.
Verizon Communications Inc.
Walt Disney Co.
Intel Corp.
Merck & Co. Inc.
AT&T Inc.

[cjcerny]

I think less is always more, especially when you start to think about what could happen if you leave this earthly plane before your money does. 12 funds is fine for a Boglehead--they have an intense interest in investing. You would never want to leave a 12 fund portfolio to a beneficiary, though. They're going to march that thing straight down to Edward Jones and then all that hard work of index investing goes down the drain. I would go with something like the Balanced Index Fund or one of the LifeStrategy funds if you think there's even a small chance your money will outlive you.

[bikechuck]

Too many funds creates a lot of overlap. It also dilutes your compounding because you're going to end up with a bunch of garbage funds. You're also market timing if you're trying to break VTSAX into components, which means you will inevitably trail the market

I own 12 funds and have very little overlap.

How is that market timing? VTSAX has 25% in 10 companies. No it does not mean you will trail the market.

I share your concern about the concentration of a cap weighted total U.S. stock fund in a handful of companies however I disagree that your portfolio as you have described it has very little overlap.

I have reluctantly added a small cap fund to mitigate the impact of the goliaths on my total U.S. stock fund but I sometimes wonder if that is a benefit or a detriment to my portfolio.

[tibbitts]

I don't think having a large number of funds is all that complex, compared to lots of other things in life.

If you are a fan of active management (whether a good idea or not), I think it's a best to diversify your bets. And if all your independently-managed (being careful that the same management team isn't running all your funds) eight active funds buy the same stock... well, if you believe in active management, that must be a stock you'd want to own. In fact I would think that with active management, owing just a couple of funds would be a relatively high-risk strategy. And yes, that would apply even if your two funds are Wellington and Wellesley.

[ruralavalon]

Even the professionals will have a hard time to rebalance a 12 fund portfolio

Looks very close to Paul Merriman "Ultimate Buy and Hold" portfolio. I like it, very easy if you follow Paul's advice to limit rebalancing to once or twice a year. I have been using it for about 6 years.

Ditto with Nottooold, I've been using Merriman UBH for about 7 years. Not a problem to rebalance... not exaggerating... it only takes me 30 minutes, once a year to rebalance. There is no added complexity moving from 3 to 10. I'm blessed my hands have 10 fingers.

What drew me to this many funds was not Merriman. It was the Callan Periodic table.

Thanks to grabiner for the articulate, and less-dogmatic response.

The optimal number of funds is one fund per asset class in your allocation. Three funds work fine for most investors: one US stock fund, one international fund, and one bond fund. If you deliberately overweight some market segment, you may need an additional fund; for example, many Bogleheads hold additional funds to overweight small-cap and value.

For value tilting there is something simpler: forum discussion, "Ultimate buy and hold -- 8 slices vs 4" .

[Taylor Larimore]

Is there any advantage to owning 2 funds vs 12 ?

lilBob:

Welcome to the Bogleheads Forum!

To answer your question, please read my "Simplicity" link below.

Best wishes
Taylor

Jack Bogle's Words of Wisdom: "We ignore the real diamonds of simplicity, seeking instead the illusory rhinestones of complexity."

[Bama12]

I own 12 funds and have very little overlap.

VTSAX top ten holdings:

Apple Inc.
Microsoft Corp.
Amazon.com Inc.
Alphabet Inc.
Facebook Inc.
Berkshire Hathaway Inc.
Johnson & Johnson
Tesla Inc.
Visa Inc.
Procter & Gamble Co.

VFIAX top ten holdings:

Apple Inc.
Microsoft Corp.
Amazon.com Inc.
Alphabet Inc.
Facebook Inc.
Berkshire Hathaway Inc.
Johnson & Johnson
Visa Inc.
Procter & Gamble Co.
NVIDIA Corp.

VVIAX top ten holdings:

Berkshire Hathaway Inc.
Johnson & Johnson
Procter & Gamble Co.
UnitedHealth Group Inc.
JPMorgan Chase & Co.
Verizon Communications Inc.
Walt Disney Co.
Intel Corp.
Merck & Co. Inc.
AT&T Inc.

When I set my 401k up I went with coffeehouse portfolio mins VNQ because I couldn't buy it in my 401k. I went with VWO and broke up international.
I love the portfolio but didn't like 40% bonds so I went 10% bonds and added 30% Total Stock. I know I really need to get rid of VOO or VTI but never can pick the one I want to get rid of.

[Bama12]

Too many funds creates a lot of overlap. It also dilutes your compounding because you're going to end up with a bunch of garbage funds. You're also market timing if you're trying to break VTSAX into components, which means you will inevitably trail the market

I own 12 funds and have very little overlap.

How is that market timing? VTSAX has 25% in 10 companies. No it does not mean you will trail the market.

I share your concern about the concentration of a cap weighted total U.S. stock fund in a handful of companies however I disagree that your portfolio as you have described it has very little overlap.

I have reluctantly added a small cap fund to mitigate the impact of the goliaths on my total U.S. stock fund but I sometimes wonder if that is a benefit or a detriment to my portfolio.

Most of my overlap is with VOO and VTI. I need to drop one but never can pick the one to drop.

[greg24]

I know I really need to get rid of VOO or VTI but never can pick the one I want to get rid of.

Sounds like someone with too many funds.

[grabiner]

Too many funds creates a lot of overlap. It also dilutes your compounding because you're going to end up with a bunch of garbage funds. You're also market timing if you're trying to break VTSAX into components, which means you will inevitably trail the market

Overlap is not a problem if you are combining a blend fund with the segment you want to overweight. If you overweight value, you can have 25% in a growth fund and 75% in a value fund, or 50% in a blend fund and 50% in a value fund. Both options give the same portfolio, but the 50/50 may have a lower cost and less turnover. (Conversely, the 25/75 may be better if you have only a small taxable account; you can hold the lower-dividend growth stocks in taxable.) I hold Total Stock Market as my core US fund, but overweight value with Vanguard Factor Value ETF in my Roth IRA. For international, I hold Developed Markets Index rather than Total International as my core fund for historical reasons, then get my overweight by holding Emerging Markets Index.

In addition, it is not market timing or performance chasing if you permanently overweight an asset class, but it requires discipline. If you believe in value investing (or, for that matter, in international investing), you need to set your weights, and rebalance into your overweighted asset class when it does badly.

[abuss368]

Is there any advantage to owning 2 funds vs 12 ?

Warren Buffett has said “there is some perverse human characteristic to make the simple complex”.

Jack Bogle has said that “simplicity is the master key to financial success”.

[abuss368]

rebalance is overrated

I am not sure I follow. Did you read any articles or other information that would support that? Please share!

[abuss368]

Simplicity is better, there is advantage in holding fewer funds. Adding more funds does not necessarily increase diversification, you can get very good diversification with just 1-5 funds maximum.

For a one fund portfolio simply use a single target date fund or other balanced fund.

The wiki article "Lazy Portfolios" describes portfolios using just 2, 3, or 4 different funds. Also: forum discussion "Three-fund Portfolio"; and forum discussion "Jack Bogle-- two-fund portfolio"

This si good advice. Generally speaking I have a preference for less. However I would consider a few funds tops. That is plenty. I am not so sure there are advantages to more funds. Only complexity.

[spdoublebass]

rebalance is overrated

I am not sure I follow. Did you read any articles or other information that would support that? Please share!

Mr. Bogle said you do not have to rebalance. He did say if you must, do it once a year. Kind of like if you must hold international no more than 20%.

https://www.cnbc.com/2015/10/14/jack-bo ... -rest.html

[Bama12]

rebalance is overrated

I am not sure I follow. Did you read any articles or other information that would support that? Please share!

I have read a lot of articles from Paul Merriman,Jack Bogle and could go on and on. When I back test myself I always come out a head if I don't rebalance.

https://paulmerriman.com/why-rebalancing-huge-mistake/

https://www.cnbc.com/2015/10/14/jack-bo ... -rest.html

[Portfolio7]

It's said that the best exercise is the activity that you'll actually keep doing.

Similarly, I think the best portfolio is the one you will actually stick with for the long term, during all the ups and downs.

If I can offer my own experiences, it comes down to this: I believe Taylor has it exactly right. In the absence of any other factors, keeping it simple is best. It's easiest to manage. It's easiest (by far) for your loved ones to manage if you should pass away.

A short counterpoint: I use a lot of funds, and have no problem rebalancing or managing my portfolio. I use so many funds because of the approach I took to portfolio construction, which I did before I became familiar with MPT. I understand my portfolio, and have stuck to it in bad times. I struggled to stick with a 3 fund portfolio... which makes it a poor choice for me, though it has been great for many others.

The virtue of any approach is personal. Understanding your portfolio, as much as anything in my experience, gives one the confidence to stay the course in good times and bad. The Nobel Prize winning theory that effectively supports the 2 and 3 fund portfolios give many people that confidence. Whether you agree, or decide to approach the portfolio question differently, what I believe matters most in the end is the confidence to stay the course.

[Bama12]

It's said that the best exercise is the activity that you'll actually keep doing.

Similarly, I think the best portfolio is the one you will actually stick with for the long term, during all the ups and downs.

If I can offer my own experiences, it comes down to this: I believe Taylor has it exactly right. In the absence of any other factors, keeping it simple is best. It's easiest to manage. It's easiest (by far) for your loved ones to manage if you should pass away.

A short counterpoint: I use a lot of funds, and have no problem rebalancing or managing my portfolio. I use so many funds because of the approach I took to portfolio construction, which I did before I became familiar with MPT. I understand my portfolio, and have stuck to it in bad times. I struggled to stick with a 3 fund portfolio... which makes it a poor choice for me, though it has been great for many others.

The virtue of any approach is personal. Understanding your portfolio, as much as anything in my experience, gives one the confidence to stay the course in good times and bad. The Nobel Prize winning theory that effectively supports the 2 and 3 fund portfolios give many people that confidence. Whether you agree, or decide to approach the portfolio question differently, what I believe matters most in the end is the confidence to stay the course.

+1

[abuss368]

It's said that the best exercise is the activity that you'll actually keep doing.

Similarly, I think the best portfolio is the one you will actually stick with for the long term, during all the ups and downs.

If I can offer my own experiences, it comes down to this: I believe Taylor has it exactly right. In the absence of any other factors, keeping it simple is best. It's easiest to manage. It's easiest (by far) for your loved ones to manage if you should pass away.

A short counterpoint: I use a lot of funds, and have no problem rebalancing or managing my portfolio. I use so many funds because of the approach I took to portfolio construction, which I did before I became familiar with MPT. I understand my portfolio, and have stuck to it in bad times. I struggled to stick with a 3 fund portfolio... which makes it a poor choice for me, though it has been great for many others.

The virtue of any approach is personal. Understanding your portfolio, as much as anything in my experience, gives one the confidence to stay the course in good times and bad. The Nobel Prize winning theory that effectively supports the 2 and 3 fund portfolios give many people that confidence. Whether you agree, or decide to approach the portfolio question differently, what I believe matters most in the end is the confidence to stay the course.

That is extremely well said and a very reasonable strategy to take with your portfolio.

[AerialWombat]

I am at 5 funds, with only inconsequential overlap.

Each fund meets a specific purpose. E.g., adding a tiny commercial real estate tilt in securities portfolio to make me feel better about my 100% residential exposure in my direct real estate portfolio.

I wouldn’t want any more funds than what I have. Occam’s Razor, and all that.

[abuss368]

An investor has unlimited choices and the answer may be different for everything. The only right answer is the one that works for you!

For some that may be a simple LifeStrategy or Target fund as a one fund solution. Others may prefer a Two or Three Fund Portfolio. Vanguard investment experts recommend a Four Fund Portfolio of Total Stock, Total International Stock, Total Bond, and Total International Bond.

Other may prefer tilts or additional slicing and dicing layered on top of total market funds. Some may prefer individual funds rather than total market funds!

Often this is driven as a direct result of what funds are available where the assets reside or what an employer plan offers.

This is all flavor and fluff and likely not going to make a difference. The overall asset allocation between stocks and bonds drives everything.

[dogagility]

If I owned 12 funds, I might be susceptible to performance chasing. Thankfully, I don't.

[KlangFool]

Is there any advantage to owning 2 funds vs 12 ?

Why not one fund? One is better than 2 or 12.


KlangFool

[Money_Badger]

I have a large chunk in Vanguard Target 2035, but I feel it's too conservative for me, so I also own VFIAX (large index) and VSGAX (small index) so my AA is weighted more to stocks than bonds, and also reduces the international exposure, which I feel is too high for me in the Target 2035.

Those funds are not available in my employer 401K, so I have different but comparable funds there, as does my wife in her TIAA accounts.

I will admit that it the presence of the target date fund is going to make rebalancing challenging when you look at it in conjunction with the other funds. Is there any way to know exactly what the current AA in Target 2035 is that is more or less real time? The prospectus lists 75 / 25, but how often is that rebalanced? How do I know if the fund has become overweight towards stocks (or bonds) and is due to be rebalanced?

Overall, I don't think it's that big of a deal, but I am a bit curious about the rebalancing process inside a Target Date fund.

[abuss368]

If I owned 12 funds, I might be susceptible to performance chasing. Thankfully, I don't.

I would agree that is a HUGE consideration and in many respects I am the same way. If I had a lot of moving parts, I may not be able to stick with my plan. An investor has to be comfortable and sleep well at night. One blow up could result in additional pain and sacrifice down the road! Mistakes compound!

[Northern Flicker]

Having 12+ funds can lead to not giving enough attention to understanding each product, potentially missing important details.

The best way to build a portfolio is at the asset class level not fund level. Then choose funds that are good implementations of each asset class. Asset classes may be coalesced or expanded, eg you can have total int'l as an asset class or DM and EM as asset classes.

[Mario2222]

2 funds VTWAX & VBTLX

[Johm221122]

Is there any advantage to owning 2 funds vs 12 ?

This 100% depends on your Investment plan and target asset allocation. There is no one answer that fits every situation

[dcabler]

Is there any advantage to owning 2 funds vs 12 ?

This 100% depends on your Investment plan and target asset allocation. There is no one answer that fits every situation

+1 There is no one size answer for everybody.
Sure, there are things you need to pay attention to. But in the modern era of spreadsheets and aggregators, equating "simplicity" to number of funds held doesn't make sense to me. Even then, there are also unique situations - between DW and I we have a number of accounts (not by choice) and there are a number of ways to structure the total AA when you do that - outside of our IRA/Brokerage accounts which constitute the majority of our holdings, we chose to mirror our AA in the remaining accounts. But the fund choices aren't identical in each one, so there are more funds. In this case "simplicity" meant that in those accounts (401K, HSA, deferred comp), I can use the one-button rebalance feature if any get out of whack. And I'm still contributing to 2 of them. My choice for what "simplicity" means to me, given the situation.

I am not a 3-funder. And no, you don't have to be a 2 or 3-funder to be a boglehead and, no, not being a 2 or 3-funder is no reason to be labelled with the dreaded scarlet letters "MT" (market timer).