Holding too many funds could mean doubling up on investments rather than diversifying your portfolio. Find out how to decide on the right number of funds for you.
One of the most important principles of investing is that you should spread your money across different types of investments to reduce risk in your portfolio. Known as diversification, some investors may achieve this by investing in a range of different funds. But how many funds do you need for your portfolio to be properly diversified?
Logic might suggest that the more funds you hold, the more diversified your portfolio becomes. In reality, you could end up with an unwieldy portfolio where you’re simply doubling up on the same investments and paying more in fund charges.
Here, we explore what to consider when you’re deciding how many funds to include in your portfolio.
Last updated: November 2025
So you’ve been hearing about index funds and the magical S&P 500 that seems to make everyone rich over time. Maybe your friend won’t shut up about how they’re making “passive income” from their investments, or perhaps you’ve seen those YouTube videos with arrows pointing at dollar signs. Now you’re wondering should I put all my money in one index fund?
I’ll give you the straight answer right away probably not all of it. But some? Yeah, that might be a smart move
What’s the Deal with S&P 500 Index Funds Anyway?
Let’s break this down real simple. The S&P 500 is basically a collection of 500 of the biggest U.S. companies. When you buy an S&P 500 index fund, you’re buying tiny pieces of all these companies at once. Companies like Apple, Microsoft, Amazon – all the big guns.
The beauty of these index funds is they’re:
- Super cheap to own (low fees)
- Diversified across many companies
- Historically reliable performers
- Way easier than picking individual stocks
Over the long term, the S&P 500 has returned about 10% annually on average before inflation. That’s pretty darn good! But here’s where people get confused – that doesn’t mean 10% every year. Some years it might be up 20%, others down 30%. It’s the long-term average that matters.
Why Not Go All-In on One Index Fund?
Here’s the thing – putting all your money in one basket, even if it’s a basket with 500 different companies, still has some risks:
-
It’s all U.S. companies – What happens if the U.S. economy struggles while other countries boom?
-
It’s mostly large companies – The S&P 500 is weighted by company size, so the biggest companies have the most influence on performance.
-
You might need some of that money sooner – What if the market crashes right when you need cash?
-
It ignores other assets – Bonds, real estate, international stocks, and small-cap companies aren’t in the mix.
I remember back in 2008 when the S&P 500 dropped nearly 40%. Imagine having ALL your money there and needing some for an emergency. Yikes! That’s why most financial advisors recommend a bit more balance.
A Better Approach: The Core-and-Explore Strategy
Instead of the all-or-nothing approach, I prefer what some call the “core-and-explore” strategy:
-
Core holdings (70-80%): This could be your S&P 500 index fund plus maybe a total international stock index fund and a bond index fund.
-
Explore holdings (20-30%): This might include specific sectors you believe in, individual stocks you understand well, or other asset classes like real estate investment trusts.
This gives you the best of both worlds – the reliable performance of broad index funds plus some exposure to opportunities you think might outperform.
How Much Should You Actually Invest?
Before dumping money into ANY investment, make sure you:
- Have an emergency fund covering 3-6 months of expenses in cash
- Paid off high-interest debt (especially credit cards)
- Are maximizing any employer 401(k) match
- Have insurance to protect your income and assets
After that, here’s a rough guideline for how much to put in index funds:
| Age Range | Index Funds % | Bonds % | Cash/Other % |
|---|---|---|---|
| 20s-30s | 80-90% | 5-10% | 5-10% |
| 40s-50s | 60-80% | 15-30% | 5-10% |
| 60s+ | 40-60% | 30-50% | 10-20% |
These are just guidelines! Your personal situation might require something different.
The “Set It and Forget It” Approach – Does It Work?
There’s this idea that you should just dump money in index funds and never look at it again. While I love the sentiment (avoiding panic selling is smart!), I think “rarely look at it” is better advice than “never.”
At minimum, you should:
- Rebalance once a year
- Adjust your allocation as you get closer to needing the money
- Reconsider if your life circumstances change dramatically
The best investors are often those who check their portfolios least frequently, but that doesn’t mean zero maintenance!
Real Talk: The Psychology Factor
Here’s something most finance articles won’t tell you: the biggest challenge isn’t picking the right fund – it’s managing your own psychology.
When markets tank (and they WILL tank at some point), will you panic and sell? When your friend brags about making 300% on some random crypto coin, will you abandon your strategy out of FOMO?
The S&P 500 has historically done well over long periods, but only if you actually stay invested. Many investors earn far less than the market average because they buy high and sell low based on emotions.
I personally freaked out in March 2020 when markets crashed due to COVID, but thankfully I didn’t sell. Those who did missed out on the incredible recovery that followed.
Some Alternative Approaches Worth Considering
If you’re not sold on the all-in-one-index-fund approach, here are some alternatives:
-
Three-Fund Portfolio: Total US market index fund + International index fund + Bond index fund
-
Target-Date Funds: Automatically adjust your allocation as you approach retirement
-
Robo-Advisors: Services like Betterment or Wealthfront that handle diversification for you
-
DCA Approach: Instead of investing all at once, spread investments over time through dollar-cost averaging
Common Questions People Ask Me About This
“But what about beating the market?”
Listen, about 80% of professional fund managers fail to beat the S&P 500 over 10+ year periods. If the pros can’t consistently do it, what makes you think you can?
“What about recessions?”
Recessions happen. But historically, if you stay invested through them, you come out ahead. The worst thing you can do is sell during a downturn.
“I’m scared of losing money!”
That’s normal! If you’re super worried, maybe start with just 50% in index funds and 50% in more conservative investments. You can adjust as you get more comfortable.
“Shouldn’t I just wait for a market crash to invest?”
Timing the market is incredibly difficult. Most studies show you’re better off investing when you have the money rather than waiting for the “perfect” time.
My Personal Take
I’ll be honest – I don’t have ALL my money in one index fund. I have about 60% in various index funds (including a big chunk in an S&P 500 fund), 20% in individual stocks I’ve researched carefully, 15% in bonds, and 5% in alternative investments.
This works for ME because I understand my risk tolerance and investment timeline. Your situation might be different.
The truth is, putting a significant portion of your long-term investment money into an S&P 500 index fund is probably a smarter strategy than what 90% of people do with their money. But going “all in” might be taking a good idea too far.
The Bottom Line
S&P 500 index funds are amazing tools for building wealth, but they shouldn’t be your entire financial plan. Think of them as the foundation of your investment house, not the whole structure.
Start by figuring out:
- When you’ll need the money
- How much risk you can truly tolerate
- What other financial priorities you have
Then build a portfolio that reflects YOUR needs, not just what worked for someone else.
And remember – the perfect investment strategy you can’t stick with is worse than an imperfect one you’ll actually follow. Be honest with yourself about what approach you’ll maintain through good markets and bad.
So should you put all your money in one index fund? Probably not ALL of it. But if you did put a big chunk of your long-term investment dollars into a low-cost S&P 500 index fund and left it alone for decades, you’d likely do better than most investors out there.
What’s your experience with index fund investing? Have you gone all-in or do you prefer more diversification? I’d love to hear your thoughts in the comments!
What are the funds investing in?
Funds can invest in hundreds, or even thousands, of underlying investments. Some funds invest in several regions across the world, whereas others target a specific region, sector or category. Before you invest in a fund, it’s crucial to check what it’s actually investing in. That way, you’ll not only know whether it suits your goals and attitude to risk, but you’ll also avoid doubling up on the same investments.
Index funds and exchange-traded funds (ETFs)4 typically track the performance of a particular market index, such as the FTSE All-Share in the UK. If you invest in more than one UK fund or ETF, you’ll most likely duplicate your investments rather than diversify your portfolio. Even funds and ETFs with different-sounding names may overlap. For example, a lot of global funds have a large US weighting and may therefore contain a lot of the same underlying investments as a US-focused fund.
The same applies to active funds – where fund managers choose the underlying investments according to the fund’s investment objectives. If two active funds are following a similar investment objective, there could be some crossover in the underlying investments, so they might not be adding as much diversification as you think.
How many is too many?
Investing in dozens of funds not only increases the risk of duplication but could also mean you’re paying more in fees. By investing in fewer funds – or even just one fund, as we discuss below – you’re more likely to be able to control costs. Fees eat into your investment returns over time, so by keeping costs low early on, you can increase your chances of investment success.
Another drawback of investing in a lot of funds is they can be difficult to keep track of. If you’re struggling to monitor and manage your funds, you should probably ask yourself whether you’re investing in too many.
Over time, your portfolio will need rebalancing and the more funds you hold, the harder this will be. Rebalancing is when you buy and sell investments so that the balance of shares and bonds remains in line with your goals and attitude to risk.