How many funds in the “perfect” portfolio?

Of course, it is not just how many funds, but how many holdings overall if you also have individual stocks. We get a steady stream of emails asking that question in one form or another.  Here’s a quick run-down of our thoughts.

 

 

The longer answer is that it depends. 

 

If you have a portfolio of funds spread across asset classes – something like our Age Guide Portfolio – perhaps you might have 15 funds.  But with a different portfolio style you could get away with as few as 3 funds.  

 

Just be clear that if your portfolio is 20+ an overhaul is definitely in order: you will be struggling to keep track of them all. In a situation when markets start tumbling there are simply too many decisions to make, fund by fund.

 

 

The main benefit of holding funds is diversification – not being unduly exposed to just one holding if it goes bust.

Imagine you had a discretionary portfolio (through a stock broker or bank) full of individual shares and bonds, rather than funds.  You would probably have around 30 individual holdings, perhaps a bit more but not much. 

 

In contrast, each individual fund in your portfolio will usually hold between 50-100 individual investments.  Even if you held just 3 funds (an easy number to monitor), the total of underlying shares is probably 150-300 – that’s a lot of diversification.

 

 

Why not indeed.

 

A significant proportion of our users focus largely on the UK stock market.  In such a situation, there is absolutely no point in having 15 funds or anything close.

 

If you focus solely on stock markets, but also like an overseas exposure, this could stretch to 6 funds.

 

For example, you could combine our Dynamic UK Portfolio with the Dynamic World ex-UK Portfolio. This would give you 6 funds in total, 3 from the three main UK sectors and 3 from the main stock market sectors from around the world excluding the UK. This is our 50:50 portfolio, which you can see here.

 

Using the tools on FundExpert you can create many different portfolios. Have a look at the Dynamic Portfolio Library for some ideas of how to begin.

 

 

Let’s look at this another way.  If you have a portfolio of £100,000, I would strongly recommend your minimum fund size is 5% of your portfolio, in this case £5,000.  A holding any smaller size is simply not going to have a significant impact on your overall portfolio.