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Any opinions as to what you think are the minimum and maximum % to have any one position in a total portfolio? I presently have 77% in 5 funds in nearly equal amounts.
”I presently have 77% in 5 funds in nearly equal amounts.”
Sounds reasonable. You posted some time back that you had 20% in PRWCX. (LINK). Not a bad choice. By all accounts it’s a great moderate risk fund. I sold it last week. But if I still owed it I’d be adding now with it down roughly 12-15% from recent highs.
No rule of course. When I was 25 I owned one. My workplace Templeton “advisor” had me in just one good global growth fund, Worked fine. (And I could have cared less at that age,) But over the following 50 years both my experience base and also the sheer amount of investment information available have multiplied. I don’t know how many mutual funds existed in 1972, but likely fewer than 10% of today’s choices. Bottom line - I’ve gone from 1 holding to over 20 (funds and stocks) in those 50 years.
One holding would still work. There are some good fund managers who can achieve nice diversification within a single fund. However, I don’t find tracking 20+ holdings that tedious using a good modern day tracker and with so much information now at my fingertips. Being at a NTF brokerage is somewhat of a new experience. If I’m going to “reach” a bit and dabble in some individual equities, far better I think to diversify and spread the risk around. After all, that was the overarching purpose of mutual funds in the early days - to spread market risk across a diversified cross section of stocks.
More directly to your question: While 1 fund could work, 5 might not work if they were the wrong choices or outside your risk parameters. Personal bias - I’d rather see people trying to hone in on the right allocation model for their risk appetite and needs rather than fretting about how many funds to own.
Ah, the age-old question @Bobpa. I agree whole-heartily with hank. Portfolio diversification is more important than number of funds, at least, imho. Holding 30, 40 or 50 funds can certainly be a diversified portfolio, but likely any 1 holding at 1, 2 or 3% is going to be meaningless to overall return. Being in 1 target date or retirement fund is likely as good or more diversified as that collection of funds. I happen to have more than 1/2 my money in the Schwab Intelligent Portfolio account (I remember you used to be in it also), and I see that account as nothing different than one of those target funds. So, I guess I have about 60% of my money in that "1 fund" .
I'll always suggest that everyone run their portfolio to their risk-comfort level. You can do it with 1 fund, 5 funds or 50 as some here do, but keep an eye on how you are diversified, and by all means make sure you measure against a benchmark. I've mentioned before I use TRP fund TBLQX because it matches fairly close for equity % to where I want to be at 68 yo. Playing with your own portfolio is fun and that is why we come to MFO, but is it fun at the expense of maybe falling 10s of thousands behind a benchmark you can just own otherwise?
If you are still at Schwab, I'm sure you know how easy it is to check your portfolio for diversification. FWIW, PRWCX is 25% of my self-managed portfolio.
Agree with everything @MikeM said. TBLQX? My lord! TRP is digging pretty deep into their symbol bank.
If you go with only one fund than benchmarking is more or less irrelevant. But the more you expand / tinker with your holdings, the more important benchmarking is. I care mostly about limiting volatility - but to some extent about total return. A good benchmark helps monitor both. There’s my “official” benchmark (consisting of 3 different funds), but there’s a few “unofficial” ones like VWINX i like to compare to.
One advantage of having more holdings is that it allows making finer portfolio adjustments - if you are so inclined. Last week I added a bit to the badly beaten mining and precious metals sectors. Pretty hard to do that if you’re only in 1 or 2 funds.
There are no hard and fast rules for minimum and maximum fund positions. I agree with much of the info stated in the prior posts. It's more important to focus on risk and diversification. An investor can achieve good results owning only a target-date fund or a global allocation fund. I think minimum fund exposure should be ≥ 5% since smaller positions will not be impactful. Having too many funds often leads to "diworsification". An individual investor shouldn't need to hold more than 12 - 15 funds in most circumstances. Less is often more...
The rule of thumb of 4-5% per holding is for individual stocks.
Most funds are already diversified but some are not. Unusually, the LC-growth index has become nondiversified (see 1st link below). Also, active funds may be concentrated in some areas/sectors by their managers. Sector funds are obviously concentrated in respective sectors. Fund-of-funds (including target-date funds, robo-advisor funds, 529 funds, etc) are quite diversified. So, considerations for funds are a bit different.
Formal definition of a diversified fund is that 75% of the should have individual holdings within 5% (see 2nd link). This old definition was to prevent funds as being used to cash pools or as controlling entities, but now is also being used for funds that purposely keep over 5% position totals under 25% of the portfolio. Despite such efforts, the number of nondiversified funds is increasing.
There are no hard and fast rules for minimum and maximum fund positions. I agree with much of the info stated in the prior posts. It's more important to focus on risk and diversification. An investor can achieve good results owning only a target-date fund or a global allocation fund. I think minimum fund exposure should be ≥ 5% since smaller positions will not be impactful. Having too many funds often leads to "diworsification". An individual investor shouldn't need to hold more than 12 - 15 funds in most circumstances. Less is often more...
+1
One “hidden danger”, I suspect, of owning only 1 or 2 funds is that it might be easy for some (not particularly well informed) investors to to get into a perpetual habit of selling one or both of those after an extended period of underperformance (umm … maybe after 6-12 months) and moving into “better performing” funds. While that might seem like a good idea at the moment, longer term it’s very detrimental to returns, as all funds will have both hot streaks and cooler ones.
The above problem is not confined to just 1 and 2 fund portfolios. But it’s probably easier to become unnerved / stressed out over a holding when it’s 50% of your assets than when it’s 5-10%..
Thanks for starting this thread. I DO own PRWCX. I had been following traditional advice about a 60/40 portfolio in retirement, reducing equities, and growing my bonds. Then came the party after fed stimulus, when covid struck. Then came the war in Ukraine. Then came supply chain issues. A can of hash here costs $5.00, last time I looked. Then came souped-up inflation and Central Banks raising rates. And the market downturn.
Because I am me, I responded to it all late and inadequately--- as ever. I bought some funds just as they were turning DOWN, earlier in the year. I'm down to 20% bonds, and my one bond fund is a TRP HY animal, now. TUHYX. I'm up to 73% stocks. PRWCX = 36.73% of total today.. (Hank says he's be adding to it now, in these current circumstances. I just did add a couple of thousand dollars to it, about a month ago. I would not dare to do that with any other fund or stock, letting it get SO big.)
Same goes for my still rather small stake in single stocks. I just started to grow THAT garden as the Market turned south. But as I have been able, I've been adding, given depressed equity prices these days. I keep my eye on a watchlist. But my retirement IRA and my brokerage account are like swimming pools with a very tall wall between them. If I take too much from the former in order to give to the latter, I'll owe taxes I don't want to pay. i live in the ZERO bracket these days. Still have a couple of years before RMDs begin.
The common wisdom is to put a limit of 20% on any single holding. That's what I'd heard. I blew THAT one out of the water. After PRWCX, my other stuff, in order of size is: PRISX. 14.9% of total. PRNEX. 11.45% TUHYX. 10.7% TRAMX. 7.4% PRFDX. 5.53% BRUFX. 5.36% BHB. 3.54% ET. 2.94% RGR. 1.45%
I'm down significantly YTD, but I'm in good company. I don't do shorts, don't invest in inverse, 3X upside-down bear funds. I'm waiting this out. When a recession shows itself, The Fed will cry "uncle," I bet. With 34% of my total in financials around the world, I'll be happier than a pig in shit when rates come down.
That was more than @Bobpa and everyone else needed to know. Sorry. Great question, though.
My five funds are PRWCX, OSTVX, VWINX, PMEFX, and CIBFX. The remaining 23% is in WBALX, JHQAX, INPFX, RPHIX, SCHD, and Cash. I use Merriman's 60/40 index portfolio as a benchmark. Presently doing about 3% better than it has. Since WBALX, JHQAX, and INPFX are on 3-4%, at some point I probably will move those $ into RPHIX or CD's or add some to CIBFX for additional international exposure. I am 78 and only use small amounts of my portfolio for home improvements, which is just another investment. According to Schwab's portfolio review, I am on target with large and small caps and a little light for international for a moderate allocation portfolio.
"I am on target... I use Merriman's 60/40 index portfolio as a benchmark. Presently doing about 3% better than it has." As of the end of June -17.27 % return for 60/40 Merriman's ! Par for the course.
In my Roth, my max position size is 17.5% (I set position targets in increments of 2.5%). Anecdotally, I found early in my investing career that position size of 10% for a strong performing stock is enough to add a notable amount to portfolio. In some of the riskier asset classes (small caps) i have a total position of 15% or so, spread across 2-3 funds. Most of my holdings are are 5-7.5%.
In my 401k, rebalancing and managing allocations is easier due to the platform my company uses. Even there I don't really have any position target below 5%, and I have an S&P index fund that is 25%. The fund options in my 401k is pretty underwhelming, which accounts for larger average allocation %.
Comments
No rule of course. When I was 25 I owned one. My workplace Templeton “advisor” had me in just one good global growth fund, Worked fine. (And I could have cared less at that age,) But over the following 50 years both my experience base and also the sheer amount of investment information available have multiplied. I don’t know how many mutual funds existed in 1972, but likely fewer than 10% of today’s choices. Bottom line - I’ve gone from 1 holding to over 20 (funds and stocks) in those 50 years.
One holding would still work. There are some good fund managers who can achieve nice diversification within a single fund. However, I don’t find tracking 20+ holdings that tedious using a good modern day tracker and with so much information now at my fingertips. Being at a NTF brokerage is somewhat of a new experience. If I’m going to “reach” a bit and dabble in some individual equities, far better I think to diversify and spread the risk around. After all, that was the overarching purpose of mutual funds in the early days - to spread market risk across a diversified cross section of stocks.
More directly to your question: While 1 fund could work, 5 might not work if they were the wrong choices or outside your risk parameters. Personal bias - I’d rather see people trying to hone in on the right allocation model for their risk appetite and needs rather than fretting about how many funds to own.
I'll always suggest that everyone run their portfolio to their risk-comfort level. You can do it with 1 fund, 5 funds or 50 as some here do, but keep an eye on how you are diversified, and by all means make sure you measure against a benchmark. I've mentioned before I use TRP fund TBLQX because it matches fairly close for equity % to where I want to be at 68 yo. Playing with your own portfolio is fun and that is why we come to MFO, but is it fun at the expense of maybe falling 10s of thousands behind a benchmark you can just own otherwise?
If you are still at Schwab, I'm sure you know how easy it is to check your portfolio for diversification. FWIW, PRWCX is 25% of my self-managed portfolio.
As always, good luck.
If you go with only one fund than benchmarking is more or less irrelevant. But the more you expand / tinker with your holdings, the more important benchmarking is. I care mostly about limiting volatility - but to some extent about total return. A good benchmark helps monitor both. There’s my “official” benchmark (consisting of 3 different funds), but there’s a few “unofficial” ones like VWINX i like to compare to.
One advantage of having more holdings is that it allows making finer portfolio adjustments - if you are so inclined. Last week I added a bit to the badly beaten mining and precious metals sectors. Pretty hard to do that if you’re only in 1 or 2 funds.
I agree with much of the info stated in the prior posts.
It's more important to focus on risk and diversification.
An investor can achieve good results owning only a target-date fund or a global allocation fund.
I think minimum fund exposure should be ≥ 5% since smaller positions will not be impactful.
Having too many funds often leads to "diworsification".
An individual investor shouldn't need to hold more than 12 - 15 funds in most circumstances.
Less is often more...
Most funds are already diversified but some are not. Unusually, the LC-growth index has become nondiversified (see 1st link below). Also, active funds may be concentrated in some areas/sectors by their managers. Sector funds are obviously concentrated in respective sectors. Fund-of-funds (including target-date funds, robo-advisor funds, 529 funds, etc) are quite diversified. So, considerations for funds are a bit different.
Formal definition of a diversified fund is that 75% of the should have individual holdings within 5% (see 2nd link). This old definition was to prevent funds as being used to cash pools or as controlling entities, but now is also being used for funds that purposely keep over 5% position totals under 25% of the portfolio. Despite such efforts, the number of nondiversified funds is increasing.
https://www.mutualfundobserver.com/discuss/discussion/59731/many-lc-growth-funds-are-nondiversified#latest
https://ybbpersonalfinance.proboards.com/thread/307/diversified-nondiversified-funds
One “hidden danger”, I suspect, of owning only 1 or 2 funds is that it might be easy for some (not particularly well informed) investors to to get into a perpetual habit of selling one or both of those after an extended period of underperformance (umm … maybe after 6-12 months) and moving into “better performing” funds. While that might seem like a good idea at the moment, longer term it’s very detrimental to returns, as all funds will have both hot streaks and cooler ones.
The above problem is not confined to just 1 and 2 fund portfolios. But it’s probably easier to become unnerved / stressed out over a holding when it’s 50% of your assets than when it’s 5-10%..
Because I am me, I responded to it all late and inadequately--- as ever.
I bought some funds just as they were turning DOWN, earlier in the year. I'm down to 20% bonds, and my one bond fund is a TRP HY animal, now. TUHYX. I'm up to 73% stocks. PRWCX = 36.73% of total today.. (Hank says he's be adding to it now, in these current circumstances. I just did add a couple of thousand dollars to it, about a month ago. I would not dare to do that with any other fund or stock, letting it get SO big.)
Same goes for my still rather small stake in single stocks. I just started to grow THAT garden as the Market turned south. But as I have been able, I've been adding, given depressed equity prices these days. I keep my eye on a watchlist. But my retirement IRA and my brokerage account are like swimming pools with a very tall wall between them. If I take too much from the former in order to give to the latter, I'll owe taxes I don't want to pay. i live in the ZERO bracket these days. Still have a couple of years before RMDs begin.
The common wisdom is to put a limit of 20% on any single holding. That's what I'd heard. I blew THAT one out of the water. After PRWCX, my other stuff, in order of size is:
PRISX. 14.9% of total.
PRNEX. 11.45%
TUHYX. 10.7%
TRAMX. 7.4%
PRFDX. 5.53%
BRUFX. 5.36%
BHB. 3.54%
ET. 2.94%
RGR. 1.45%
I'm down significantly YTD, but I'm in good company. I don't do shorts, don't invest in inverse, 3X upside-down bear funds. I'm waiting this out. When a recession shows itself, The Fed will cry "uncle," I bet. With 34% of my total in financials around the world, I'll be happier than a pig in shit when rates come down.
That was more than @Bobpa and everyone else needed to know. Sorry. Great question, though.
As of the end of June -17.27 % return for 60/40 Merriman's ! Par for the course.
Trying to enjoy the ride, Derf
In my 401k, rebalancing and managing allocations is easier due to the platform my company uses. Even there I don't really have any position target below 5%, and I have an S&P index fund that is 25%. The fund options in my 401k is pretty underwhelming, which accounts for larger average allocation %.