Target Portfolio: How Many Asset Classes To Own

By: Pete
Date posted: 12.06.2011 (11:06 am) | Write a Comment  (0 Comments)

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The time has arrived. After taking the time to read about ETF’s, about the different types of asset classes that can be used, about the different factors that influence what you should own in your accounts, I consider that you are ready to start preparing your first trades. The first question that you should ask yourself is how many asset classes that you will be investing in. Opinions will vary quite a bit but I think it’s difficult to go wrong by trying to build a simple portfolio instead of a complex one.

What influences the number that you will choose? The desire for complexity does have an impact. However, the major factor remains how much money you own. There are no fix rules but I would personally decide based on the following table:

$5000 or less: 3-4 asset classes
$5000-$1000: 4-5 asset classes
$10,000-$20,000: 5-6 asset classes
$20,000-$50,000: 6-7 asset classes
$50,000 and more: 7-10 asset classes

You could certainly add or take away a few more,but those are my personal preferences.

Why Adding Too Many ETF’s Can Hurt Your Portfolio: It will increase your trading costs both initially and in rebalancings and increase the time required to analyze your portfolio.

Why not having enough ETF’s will hurt your portfolio: In the end, you do need exposure to several types of risks in order to maximize your profits. Being only in bonds or in US equities for example gives you a lot of risk if specific events occur, risks that you could avoid if you added a few more asset classes to your portfolio.

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