The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: johnintaiwan on June 01, 2014, 07:37:47 PM
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I have begun building my portfolio again and have noticed something. I get excited thinking about new assets (ETFs in my case). I am afraid if I don't pay attention I will end up with 20 different ETFs. I see a lot of other people on the boards here in a similar situation. a bond, international, emerging markets, total us, sp 500, mid cap, small cap... It seems it is easy to get excited about buying a new asset when it is probably better to keep investing in the few we have (at least for those who are not active). Here is my current portfolio and what I still plan to buy, please let me know if you think I am over doing it:
S&P 500, Emerging Markets, REIT, High Dividend
I have a little under 15K invested so far divided fairly evenly. They are all ETF's. I plan on adding a total bond ETF in the future.
Should I stop after that? Will it be worth the extra fees (I pay about $8 per transaction now and buy about 4 x a year) to get more "diversified" or would it just become redundant? I am afraid my investments will become my new consumerism and I will always be wanting to buy something new. I guess there are much worse things I could be over buying like shoes or something, but still.
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Figure out your asset allocation and stick with it. I use three funds: total stock market, total international stock market, and total bond market.
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In theory you can get away with 3 US total market, International total market, US total bond. I see you live in Taiwan so that may not make sense.
For practical reasons e.g. married couple with an IRAs, old 401K, new 401K it is entirely possible that you'll end up with a dozen or more. Personally I own 7, along with about 40 individual stocks and bonds.
There is no diversification benefit to have more than that about 6-10 ETF or mutual funds. The complexity it adds to your portfolio can be significant, cause it it isn't always easy to see at a glance what is my asset allocation, how much international funds do I own etc. Especially you got 3 or 4 different international funds, dividend funds, small cap, mid cap growth, REIT etc. obviously their are portfolio tools but most require some type of work to keep current.
Sometimes the best thing to buy is just to buy more of something you own.
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I agree with Joel that your best course of action is to decide on your AA and then stick with it.
However, as problems go having too many ETFs isn't a huge problem. The only real "risk" is that you won't be as diversified as you think you are. For example, if you buy 3 ETF's that follow the SP500, Large-Cap US funds, and US Dividend stocks you will buying mostly the same companies in all three ETFs, at slightly different proportions. A US recession would cause all 3 ETFs to fall.
The other "problem" is that it just takes a bit more time to track what you own.
If buying and holding 20 ETFs gives you some sort of joy then it's still money saved, but you won't do any better than having 3-4 ETFs like clifp suggested. And your portfolio might suffer during recessions if you overweight your portfolio by buying ETFs that overlap.
For me, simpler is better - but do what makes you happy.
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I agree with others on getting your AA down. 95% of My portfolio is made up of 5 index funds in taxable accounts and 3 in my 401k. I use about 5% to play around with in trading (TD Ameritrade more to scratch an itch.)
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I have begun building my portfolio again and have noticed something. I get excited thinking about new assets (ETFs in my case). I am afraid if I don't pay attention I will end up with 20 different ETFs. I see a lot of other people on the boards here in a similar situation. a bond, international, emerging markets, total us, sp 500, mid cap, small cap... It seems it is easy to get excited about buying a new asset when it is probably better to keep investing in the few we have (at least for those who are not active). Here is my current portfolio and what I still plan to buy, please let me know if you think I am over doing it:
S&P 500, Emerging Markets, REIT, High Dividend
I have a little under 15K invested so far divided fairly evenly. They are all ETF's. I plan on adding a total bond ETF in the future.
Should I stop after that? Will it be worth the extra fees (I pay about $8 per transaction now and buy about 4 x a year) to get more "diversified" or would it just become redundant? I am afraid my investments will become my new consumerism and I will always be wanting to buy something new. I guess there are much worse things I could be over buying like shoes or something, but still.
Getting excited should automatically be a red flag. Asset allocation and investing should be pretty boring if done properly. Don't let your emotions drive any investing decision. Your analytical mind should be doing that. Get your excitement from hanging out with friends and family, surfing, go-karts, climbing mountains etc. You'll be much richer if you do.
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Thanks for all the advice everyone. I think i am going to cap it at 5. sp500, dividend, reit, emerging markets and a bond fund. You are all very right about AA. I decided on it before, but I just need to stick with it.
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Thanks for all the advice everyone. I think i am going to cap it at 5. sp500, dividend, reit, emerging markets and a bond fund. You are all very right about AA. I decided on it before, but I just need to stick with it.
You're doing the right thing. Well played. And best of success to you.
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Thanks for all the advice everyone. I think i am going to cap it at 5. sp500, dividend, reit, emerging markets and a bond fund. You are all very right about AA. I decided on it before, but I just need to stick with it.
Good call.
I don't think getting excited is necessarily a bad thing, but get excited about owning more assets within your asset allocation - not just owning more random assets for the sake of owning something new.