How Many Mutual Funds Should You Own?
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- เผยแพร่เมื่อ 3 ก.ค. 2024
- How Many Mutual Funds Should You Own?
A viewer recently sent me a portfolio with nearly 20 ETFs and mutual funds. She didn't create it. An advisor from a major bank recommended it. Ridiculous.
The truth is that the number of mutual funds you own tells you nothing about how well diversified the portfolio is or what types of investments you have. A single mutual fund can give an investor exposure to U.S. stocks, bonds, international stocks, REITs, and even commodities.
The fewer mutual funds you have, the easier it is to understand and manage your portfolio. This becomes really important when you go to rebalance your investments. It's also critical as you head into retirement and start making withdrawals from you investments each year.
In this video, I explain why for the vast majority of investors, all you need is 3 funds.
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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I read your book after watching your videos. Great and very generous information. I added small-cap value because of the Eugene Fama and Ken French academic studies and from listening to Paul Merriman. I think the tilt does complicate the portfolio, but Bogleheads that advocate the three-fund portfolio still mention that as long as it is the core, adding a single class "that interests you" is acceptable 😊
Dear Rob, you are scary. I am convinced you are a psychic, you read my thoughts perfectly and feed me with the right topic and content right away.
This was great!
So many elements about this 20 minute piece were spot-on useful. Thanks for being so clear and approachable in your presentations.
Why not go with balanced index fund such as VBIAX (60-40). I realize minimal international but could add international index and have two fund portfolio. No worries about rebalancing etc..
Dude, you give such an amazing amount of value in your videos. Thank you.
Great as usual! Thank you so much.
Thanks forever rob. You really make it easy and simple to understand. I have no doubt that I'm on the right track. Tommy.
Fantastic channel, content, presentation, everything. Huge TH-camr in the making.
I agree 100%. Having more mutual funds doesn't make your portfolio more diversified it only increases your risk in mutual fund overlap.
Which isn't actually a problem, as long as your funds are balanced overall.
I go with multiple funds (8) so I can go with multiple providers. That way if one of them underperforms or goes bust (yes, many fund groups/banks have gone bust over the years) you are covered and don't lose the lot (or a least a substantial proportion of it.)
@@trickyrat483 Fund groups / banks may go bust, but your investments are in a trust so that would not cause you to lose your holdings. FYI.
Once again, an excellent video
Perhaps a weird psychological phenomenon, but I really enjoy decoupling my asset classes as it allows me to easily understand the movement in my portfolio. I realize that this is not necessary, but I simply can’t help it. Hence, instead of running 3, I run 6.
Thank you! I am about to take the plunge & sell 10 fidelity mutual funds in my Roth & Trad IRAs that have high expense ratios (.57-.87%). Doing it today while the market is up. The S&P is over 4500 today, 8/27/21. I’m not selling my individual stocks that’s about 15% of my portfolio. I will start over with VTI & maybe BND. Not selling anything in my brokerage account until 2022 for tax reasons.
Thanks for the great videos Rob very helpful I use ETFs VTS and other Australian Vanguard funds
You have just simplified my life, THANK YOU ! ❤
Great points. The three fund portfolio is great for more than starting out. My entire stock portfolio mirrors VT / VTWAX.
Bob, I love your videos, thank you. I have just purchased your book (Audible) and now sharing with my young adult kids. One note, your mic is somewhat low, at times, compared to other TH-camrs. Just something I noticed. Sounds great otherwise. This video is pretty good with the mic level.
Sensible, cogent argument Rob for not loading up on a bunch of unnecessary and costly mutual funds. Thank you.
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Pls Rob compare these portfolios: 80% VWCE 20% EUNA vs. 90% SXR8 10% EUNA (it's a 3 fund vs WB, both European version). Nobody explains like you. 🙌
Hi Rob, Love your blogs and advice. A question about simplifying vs diversifying. What to do about your spouses funds? If you have 3 accounts say - 401, IRA and Roth IRA. Spouse then has the same. You don't want to have the same funds in both of your accounts. Even if you have a diversified fund like VTI. To me it doesn't make sense for both of us to have VTI even though it's well diversified. I'm always looking for something different to do with each account so as to further diversify and safety net for downturns. Do you have a two person strategy?
I own 5 and will liquidate one (and tax deferred account with pain in butt RMD requirements). A total of 4 is easy to balance every year.
Yes, people think that diversification is actually owning more funds rather than what the funds hold. They buy many packets of different brands of frozen mixed vegetables rather than what the veg contents are. Different packages all containing corn and peas?
Thanks Rob, this video cleared my long standing confusion with diversity.
The way you describe the different investment accounts make it very easy for someone like me with a limited knowledge of the market. I think that Vanguard firm have got it made as you can pick from such a wide spread of accounts but it will need careful planning. Thank you sir.
You can do the same with Fidelity, American Funds, Schwab, etc. There are many easy sites to navigate after you set up an account.
Thank you Rob! How about the weights/percentages? 50yrs old
Wellington and done...
Except for the Roth piece of the portfolio which should stay more aggressive, I agree.
All of your videos are great! I wish I had watched them 20 years ago. Question: When we see the return on investment numbers in Morningstar reports, is that number before or after the expense percentage?
As the great John Bogle stated, " Simplicity is the master key to financial success. The more complex the world around us becomes, the more simplicity we must seek in order to realize our financial goals."
Rob, thanks for great work you are doing.
Can you do a video focused on taxable account portfolio? For those of us who likely made a mistake by not maxing out their 401Ks, have accumulated sizeable cash which needs a well guided yet simple investment strategy. Can't think of anyone better than you?
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Rob, please explain whether I should get SS money first or tap my IRA money first？
I was determining between small cap and international fund …ehhhh just starting our head so confused
Interesting points in your video. Question I would have is this. If I stick with a 60/40 split between stocks/bonds, of the 60% in stocks what is the allocation between US and International equities?
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Rob, thanks for another excellent video. I know you are a big proponent of the 3-fund portfolio, but could you address the idea of having only 2 funds; Total Stock and Total Bond? When I compare Vanguard’s Total Stock fund with their Total International Stock fund, the US fund outperforms on nearly every metric at a lower cost. Could you explain why you’re a such a fan? Keep up the great work!
That's basically the Warren Buffett Portfolio--robberger.com/warren-buffett-portfolio/
@@rob_berger . Thank you for all of your wonderful work. It has greatly helped me as I transition from working to FIRE. I have compared the 2 fund portfolio (VTSAX and Vanguard US total bond fund) with the 3 fund portfolio with a 70/30 mix in Portfolio Visualizer. Help me with my analysis. It appears that the international fund causes more volitility, less returns and higher down side. Am I looking at this correctly? Thanks!
@@maryreynolds4085 Great question. I'm putting a video together to address the pros and cons of having an international equity fund.
@@rob_berger Great! Thanks again for all you do to help the DYI community.
As always, a well thought-out video on a topic of interest to many. Thanks. At the same time, I've noticed that on this issue, as well as on others (bucket list, 4% rule, how much cash to keep on hand, among others), you frequently revisit a topic and refine or even radically change your perspective on it. This could be confusing to viewers. So two requests: First, when there has been a substantial change in your thinking, can you note this in your introduction to the video (or segment of a video), so that those of us who have been following you over time can know we're about to hear something different on the matter? And second, when there has been a significant change in your approach to an issue, can you go back to previous videos you made on that issue and insert one of those on-screen banners at the top, to link to the more recent video that reflects your current perspective? It would be a big help for viewers (like me) who can get confused when they heard you say something a few months ago, and now hear you contradicting that approach, without getting a "heads-up." Looking forward to the next video :-)
Joseph, thanks for the comment. I do refine my views over time. The only radical change I can think of is the bucket strategy. As I've said in past videos, I planned to use the bucket strategy in retirement, and created some videos about it. When it came to actually implementing it, however, it was clear that it's not a great strategy, at least for me. I think that's well documented in the videos. Moving toward 3 or 4 funds from 5 o 6 isn't really a significant change IMO, at least from an asset allocation perspective. My stock/bond allocation hasn't changed. But I'll certainly try to document any changing views as they come up.
I look forward to direct indexing becoming easier, cheaper, and more common. Then the ideal number of funds will be zero
how about brokerage accounts? not sure if i should do all my investments in one brokerage account yet at the same time it seems it will be complicated to manage/rebalance the overall portfolio...
Excellent video Rob! Thanks.
Interesting, but why don't you promote dividend ETFs? REITs provide income too but are more volatile than, eg. VDC or VYM.
Good video, Good point about simplifying portfolios, what I don't understand is why advisors says Vanguard VTI, Vtsax funds are well diversified, but 10 stocks (out of 3908 total) make up 23% of the fund? Any comments?
That's the downside of indexing.... They are market cap weighted. IMO, small and mid cap funds are kind of necessary for that reason.
Rob, any reason to own both Vang Total Bond funds, US & International for a four fund portfolio?
Hi Rob, what about protection for inflation? Can't you put in a fund or ETF that protects for inflation? Or is that also covered in a 3 fund strategy?
He's done videos on I-bonds and TIPS. Also, stocks outgrows inflation over time, so best to keep those over the long run anyway. Real estate and commodities are alternative investments that might or might not keep up with inflation.
Hi Bob new subscriber here. Great video content! I have a question for you. I have 10 years left of my working career. I’ll be 67. Unfortunately I’m behind so won’t be one of the people that can retire early.
I’ve been hearing a lot about dividend stocks. Would that be a good fit for someone my age? I have about 100k in retirement plus about 10 in TSP. Just started 7 months age and contributing 30%. Or should I just invest into a individual IRA. I have about 10k I can start another fund with. Sorry so long. What are you thoughts?
Thanks
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No gold? And what evidence is there to support VXUS as a risk reducer? I’ve back tested on portfolio visualizer and really can’t justify it. Currency hedged emerging market seems the only true help. Currency hedged because it avoids the issue of us currency strength when emerging markets tend to do well.
Why not sprinkle in sector ETFs to balance out the overweight in Tech that nearly all funds suffer from?
How true. The S&P 500 index is basically a tech sector index at this point.
what percentage of the total allocation would you think is good for the international (ex-US) fund?
Great question!
I think Vanguard suggests 40% international as part of overall stock allocation.
@@stevenobrien595 Thank you, Stephen! I've long thought about this, firstly because of a Bogle book I read years ago, he believed at the time (mid '90's) that the US was good enough, many companies had int'l exposure, and it could get tricky with int'l currency and tax situations...40% sounds a bit high to me, but maybe it makes more sense in the decoupling of the globalized economy...
Hi Rob. I love your videos. I've learnt so much from you. I have a question: When you reached retirement and you had £1m in a 60/40 stocks/bonds pot, what do tax liabilities look like when you start to withdraw funds? I live in the UK. Keep going with the great videos :)
In the UK, just like the US, it depends entirely on where that £1M is held..
In an ISA, for example, there would be zero tax liability.
In a SIPP or other pension vehicle, the first 25% of each withdrawal is tax free, then the remainder is taxed (after your £12,570.00 annual tax-free allowance) as normal (20% if the total withdrawal after the 25% tax-free is under £50k). As an example, a 3.2% withdrawal of £32k would leave you ~£30k in-hand.
NB. If that £1M is all in a pension, you are dangerously close to the LTA (currently just under £1.1M), so you need to think very carefully around that, especially as it's been decimated and frozen for the next few years; the tax implications could be severe, as it's an allowance on the "total benefits taken", and NOT the amount invested. You will need to plan carefully, or you could be hitting a 45-55% tax charge on future fund growth withdrawals.
If held outside of those tax-efficient vehicles, you could still utilise the tax-free £2k dividend allowance and the £12.3k capital gains allowances, depending upon the type of asset classes you invested the money in.
I do advise seeking professional advice if you have £1M and are this unsure (and that advice should be PAID HOURLY, and not a rip-off PERCENTAGE OF FUND SIZE type arrangement; see the FSA report into this scummy/scammy market - it doesn't make for pretty reading..)
Hope the above helps.
@@trickyrat483 Thanks for that. That's really helpful. I'm currently 30, and don't have a million! But from watching Rob's videos based on starting a three fund portfolio with a lump sum and ongoing contributions it could end up that way when I come to retirement. It's the "vehicles" I'm struggling to get my head around. I thought I would just get an account with Vanguard and buy into the three asset classes. I'm assuming it's not that simple?
Tbh, it's even simpler. :)
At 30, I'd just initially recommend a single "equity heavy" (80%+) diversified fund. Vanguard Lifestrategy 80, for example. But do make sure you use a tax-efficient wrapper. If you are investing less than £20k/yr, then make that an ISA.
Also, if you have a pension plan, use that, as it's tax advantages can be huge - up to £40k/yr tax-free investment at the moment. But do be aware of the LTA implications later on.
If you still have spare cash after ISA and Pension, just buy some funds and hold them. You can use the capital gains and dividends allowances on them later in life. Still, use the ISA and pensions up FIRST.
Btw, a £1M fund is the minimum you should be aiming for, especially if you want to retire in your 50's, and not wait for your State Pension at 69 - and that age will probably move even higher before you get there! :)
Tricky Rat. This is top financial advise. It's also great to hear UK biased comments on what is essentially a US channel. I think this shows what an excellent source of information this YT channel has to offer. However one thing I disagree with is your minimum amount of 1 million. With 500k invested (and a 4% return) yields 20k which is in the comfortable zone according to the latest findings.
Rob. Could you review VTMFX for a single fund taxable and the yearly tax implications for 32% income rate Contribution for the next 10 years while employed compared to Vanguard balanced fund in a taxable account. In both cases assuming the benefits of a 22% tax rate in retirement there after
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Save horizon min 30 years (extra saving to complement my pension/ability to retire at the age I want, in Sweden). In Sweden the tax is on total amount and not on buy/sell if we choose it. It's a 0.375% tax on the total amount yearly automated/no need to file. We can opt out and do the traditional taxing should we choose.
I have a total of 10, one for each region I want to be in (almost equally weighted). I manage them monthly, keeping the % the same (only buying never selling). I.e. putting more money into the worst performance, for example US drops, but Russia doesn't then US will have more invested that month to balance the %.
If there is a worldwide crash/correction I increase the monthly amount I save.
I find this more engaging and fun than just putting everything into an all-world as I can equally weight to my preference and maximize on taking advantage of drops in the market.
It also keeps me diligent in my investing as it becomes a hobby and not just a necessity.
This is current allocation I keep intact monthly:
[Team Legacy]
USA = 13%
Nordics = 10%
Oceania & Pacific = 9%
Europe = 9%
Japan = 9%
[Team Growth]
Russia = 13%
Mixed emerging markets (Asia, latinamerica) = 10%
Frontier markets (vietnam, pakistan, philippines, bangladesh etc) = 9%
China A (non-index) = 9%
India = 9%
VOO, VTI, and VUG
Great ETFs, but a ton of overlap
What should be put in a roth? Over 55 just starting out. I heard you say reit's and high growth should high dividends be included? So lost..
If you are just starting it doesn't matter so much. Focus on saving more. A target date retirement fund is prob the simplest
I would tend to put high growth ETFs in Roth and put bonds and REITs in tax deferred accounts. That said it doesn't matter that much.
Is the 3 Fund Portfolio preferable to having VT with a Bond ETF only?
Depends. It's simpler but also slightly pricier and can't tax loss harvest in a taxable account as easily. For ultimate simplification VT is fantastic.
If your company offers 401K , you should invest at least up to the matching max ，then boost it up to max allowable gradually. When you change company, you can decide to keep the money there or move to the new company. When you’re out of then job market, the invest $7K each year.
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Is it 1/3 in each fund? I may have missed the weighting.
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I'd just pick 10 good companies and put 10 pct in each.
I run four funds :
Total stock market
S&p 500
Vgdix
Nasdaq high growth
There is significant overlap between total stock market, s&p 500 and NASDAQ 100. Since they are all weighted by market cap, that's a lot of AAPL, AMZN, MSFT, etc.
@@travis1240 that is very true and my intention.
is it unwise to not have bonds at 39? I've got US stocks, international and 10% in a REIT in my Roth IRA. 6% and match goes in my Roth 401k so I guess I'd have bonds in there.
To clarify: you may contribute to your Roth 401(k) but the company match goes toward your traditional 401(k) not Roth 401(k).
@@alrocky correct, that is what I meant haha. good distinction to make
Is it really important to diversify in foreign stocks or binds? Even Bogle said that investing in the U.S. market is where it's at, and only a small percentage (I have less than 8%) for foreign stock funds. For a retirement account, how about just an S&P 500 fund, a U.S. small cap stock fund, and a domestic bond fund?
But if the one fund you chose turns out to have a disingenuous manager, ot worse incompetent making a fat finger typo wiping out the capital? Or if they get hacked and it takes years to figure out who owns what? Diversify funds and banks is as important.
None... Individual Stocks Only...
He was trying to emphasize simplicity. Also, most people are terrible at choosing individual stocks.
GLHF. 🤷🏻♂️
Though it seems expensive, your thoughts on subscribing to PERSONAL CAPITAL's full portfolio services? I'm a relative novice, about to retire, need help with: consolidating funds, tax efficiency, withdrawal strategy, possible future Roth conversions, when to take SS, and rebalancing help on ongoing basis. Would like more hand-holding than someone like you might need. Are they reputable, safe, beneficial?
It's a good question. I'll work up a video evaluating their portfolio management services.
@@rob_berger Thank you, Sir, looking forward to it. Sarah Jeremiah.
1
I have 14 ETF's at Vanguard and 16 at Robinhood !! I am doing just fine
Eww, Robinhood. Honestly sounds like you didn't watch the video.