How Many ETFs Should You Really Own? Finding Your Perfect Number

Ever stared at your investment account wondering if you’ve got too many ETFs… or not enough? You’re definitely not alone. As someone who’s spent countless hours overthinking my own portfolio, I totally get the confusion.

The quick answer? You can build a fully diversified portfolio with just 4 ETFs. But like most things in the investing world, the complete answer is: “it depends.”

Let’s dive in and figure out exactly how many ETFs make sense for YOUR specific situation.

The Beauty of Simplicity: Why Less Can Be More

When I first started investing, I thought more ETFs meant better diversification. Boy, was I wrong! What I ended up with was a messy portfolio with lots of overlap and higher fees than necessary.

Here’s the truth: You could potentially invest in just ONE ETF and call it a day.

Seriously! The Vanguard Total Stock Market ETF (VTI) covers the entire U.S. stock market across all sectors and company sizes. If you’re only interested in U.S. stocks, technically you could stop right there.

But most financial experts suggest a bit more diversification than that. Vanguard, one of the largest investment companies, suggests you can build a fully diversified portfolio with just 4 core ETFs

1. Vanguard Total Bond Market ETF (BND) – For U.S. bond exposure
2. Vanguard Total International Bond ETF (BNDX) – For international bond exposure
3. Vanguard Total Stock Market ETF (VTI) – For U.S. stock exposure
4. Vanguard Total International Stock ETF (VXUS) – For international stock exposure

This simple 4-ETF approach gives you exposure to thousands of investments across global stock and bond markets. Pretty impressive for just four holdings!

The Control vs. Simplicity Tradeoff

So why don’t we all just invest in 1-4 ETFs and call it a day? Well it comes down to how much control you want over your investments.

Some investors (myself included sometimes) want more precise control over specific segments of the market. Maybe you’re bullish on small-cap stocks or emerging markets. Perhaps you want to tilt your portfolio toward value stocks or add some sector-specific ETFs.

The more ETFs you add, the more control you gain. But that control comes with costs:

The Downsides of Too Many ETFs

1. Complexity overload – What starts as 5 ETFs can easily grow to 50+. Do you really want to track all those holdings?

2. Unintended overlap – Several of your ETFs likely own the same companies, potentially giving you more exposure to certain stocks than you intended.

3. Higher fees – Broader market ETFs typically have rock-bottom expense ratios (BND charges just 0.03%!), while niche ETFs often charge much more.

4. More time managing – Each additional ETF means more rebalancing decisions and tax considerations.

As one person commented on an investing forum I follow: “I started with 3 ETFs. Then it became 10. Then 25. Now I’m back to 6 and my performance is actually better with less stress.” Sometimes less really is more!

Breaking Down Your ETF Allocation

If you do go with the 4-ETF approach, how should you divide your money among them? Here’s a starting point based on Vanguard’s recommendations:

For Your Bond Allocation:

• About 70% to U.S. bonds (BND)
• About 30% to international bonds (BNDX)

For Your Stock Allocation:

• About 60% to U.S. stocks (VTI)
• About 40% to international stocks (VXUS)

But your overall split between stocks and bonds depends on your:

• Age
• Risk tolerance
• Time horizon
• Financial goals

A typical starting point might be:

• In your 20s-30s: 80-90% stocks, 10-20% bonds
• In your 40s-50s: 60-70% stocks, 30-40% bonds
• In your 60s+: 40-60% stocks, 40-60% bonds

When More ETFs Might Make Sense

While 4 ETFs can cover the basics, there are legitimate reasons you might want to add a few more:

1. Specific investment themes – Maybe you want exposure to clean energy, cybersecurity, or another specific sector you believe will outperform.

2. ESG considerations – If social responsibility is important to you, you might add ETFs screened for environmental, social, and governance factors.

3. Real estate or commodities – For additional diversification beyond stocks and bonds.

4. Factor investing – Some investors add ETFs focused on factors like value, momentum, or low volatility.

5. Equal-weighted funds – To reduce exposure to the handful of massive companies that dominate market-cap weighted indexes.

For example, I personally added a small-cap value ETF to my portfolio because historical data suggests this segment can outperform over very long time periods. But it only makes up about 10% of my stock allocation.

Red Flags: Signs You Have Too Many ETFs

Here are some warning signs you’ve gone overboard:

• You can’t quickly name all your ETFs
• Your portfolio performance closely tracks a broad index (meaning all your ETFs aren’t actually providing much diversification benefit)
• You’re paying more than 0.20% in average expense ratios
• You haven’t rebalanced in over a year because it feels overwhelming
• You own multiple ETFs covering the same market segment

Real-World ETF Portfolio Examples

Let me share a few sample portfolios to illustrate different approaches:

Ultra-Simple Portfolio (1 ETF)

• 100% VT (Vanguard Total World Stock ETF)

Who it’s for: Beginner investors who want global stock exposure in a single fund and don’t mind being 100% in stocks

Basic Portfolio (3 ETFs)

• 60% VTI (Total U.S. Stock Market)
• 30% VXUS (International Stocks)
• 10% BND (U.S. Bonds)

Who it’s for: Young investors with high risk tolerance who want a simple approach

Vanguard’s Recommended Portfolio (4 ETFs)

• 42% VTI (Total U.S. Stock Market)
• 28% VXUS (International Stocks)
• 21% BND (U.S. Bonds)
• 9% BNDX (International Bonds)

Who it’s for: Investors seeking a globally diversified portfolio with moderate risk

My Personal “Core & Satellite” Approach (7 ETFs)

• 40% VTI (U.S. Total Market) – CORE
• 20% VXUS (International) – CORE
• 20% BND (U.S. Bonds) – CORE
• 5% BNDX (International Bonds) – CORE
• 5% VNQ (Real Estate) – SATELLITE
• 5% AVUV (U.S. Small Cap Value) – SATELLITE
• 5% AVDV (International Small Cap Value) – SATELLITE

Who it’s for: Experienced investors who want broad market exposure but also want to tilt toward certain segments they believe will outperform

How to Decide What’s Right for You

To determine your ideal number of ETFs, ask yourself:

1. How much time do I want to spend managing investments? (More ETFs = more management time)

2. How important is simplicity to me? (Be honest – many investors value simplicity)

3. Do I have strong convictions about specific market segments? (If not, stick with broad ETFs)

4. Am I comfortable with slightly higher fees for specialized exposure? (There’s a cost to complexity)

5. Will I actually rebalance regularly? (If not, fewer ETFs is probably better)

Final Thoughts: Finding Your ETF Sweet Spot

There’s no perfect answer to “how many ETFs should I own?” It’s a personal decision based on your goals, knowledge, and preferences.

For most investors, somewhere between 3-10 ETFs provides a good balance of diversification and manageability. Anything more should be added with careful consideration.

Remember what the great investment philosopher (ok, it was me after losing money on too many complicated investments) once said: “The best portfolio isn’t the most sophisticated one – it’s the one you’ll actually stick with through market cycles.”

I personally started with way too many ETFs, simplified down to just 3 for a while, and now have settled on 7 that I’m comfortable with. Your journey might look different, and that’s perfectly fine!

The most important thing isn’t having the perfect number of ETFs – it’s having a portfolio strategy you understand, believe in, and can stick with through market ups and downs.

What’s your current ETF count? Are you considering adding more or simplifying? I’d love to hear your thoughts in the comments!