The following recommendations are only guidelines as each investor needs to be comfortable with the number of ETFs used to diversify a portfolios. For example, I’m not comfortable concentrating a one million dollar portfolio in one or two ETFs. If the ETF were VT or VTI, then it is not so bad, but suppose the top ETF turned out to be PCY or GLD. If this were the case, reservations kick in – at least for me.
Here are broad guidelines readers of ITA might consider as appropriate for portfolio diversification.
- Portfolios between $0 and $100,000 might diversify from one to three ETFs. For example, in the Galileo I am now using three ETFs. This could easily be reduced to one or two ETFs.
- Portfolios between $100,000 and $250,000 might diversify using two to four ETFs.
- Portfolios greater than $250,000 might diversify using three to five ETFs.
The underlying assumption is that the absolute momentum is always positive. Simply put, the ETF of interest is outperforming SHY.