In this edition of ‘Stock Teasers’ we are going to be looking at a submission to /r/CanadianInvestor on Reddit where the user is asking if it is better to have more or less ETFs in their TFSA. Let’s dive in!

Below, we can see the users submission asking if it is a good idea to buy fewer shares in 10 different ETFs, or if it is better to buy more shares of fewer ETFs (3-5).

Source: Reddit

While we will not comment on an individual response or weightings for investors, in general, we would prefer to own more shares in fewer ETFs, than owning less shares in many ETFs (10+). Much depends on the quality and liquidity of the individual ETFs, but for broad market-based ETFs, which already have a lot of diversification within them, we feel that less is more.

The Over-Diversification of ETFs

The justification for owning fewer ETFs is also that most ETFs hold hundreds of individual stocks within them, already creating a lot of asset and sector diversification. Another important factor for investors to consider is any potential overlap between ETFs. For example, in this Reddit post, VFV, VOO, and XSP all have the same holdings and are designed to track the same index, the S&P 500. Thus, it is over-diversification for many investors to hold more than one of these types of ETFs.

Consider Targeting a 'Theme' to Gain Exposure To

Investors should also consider the specific theme or ‘factor’ that they want to gain exposure to. For example, the VBAL ETF is aimed at providing investors with a balanced investment approach between 60% equities and 40% bonds, whereas the VGRO ETF provides a higher growth focus, but still has 80% in equities and 20% in bonds. We might prefer to own just one of the VBAL or VGRO in an individual account, rather than both, as they each have a lot of overlap, but one is designed for a more balanced approach and the other for growth. Picking a ‘side’ can be important in investing.

Our ETF Choices

While each individual investors’ preferences and risk tolerances are unique, we would prefer a portfolio that includes one S&P 500 ETF (VFV), one Nasdaq 100 ETF (HXQ), one TSX 60 ETF (XIU), and if needed, one ‘theme’ ETF that plays on growth (VGRO), balanced (VBAL), or dividends (VDY).

Unlock the Power of Informed Investing with 5i Research!

DIY investing doesn't have to mean going it alone. At 5i Research, we're your trusted partner in navigating the stock market. Our platform offers comprehensive stock and market research, empowering you to make smart investment decisions. 

• Investor Q&A: Have burning questions? Get answers from our team of experts and fellow investors in our dedicated Q&A section.
• Research Reports: With over 60 meticulously researched Canadian stocks, our reports offer in-depth analysis, giving you the confidence to invest wisely. 
• Model Portfolios, Alerts, Forums, Portfolio Tracking, and Much More...

Authors, directors, partners and/or officers of 5i Research do hold a financial or other interest in VFV at the time of publishing. The i2i Fund does not hold financial or other interest in the above companies or ETFs at the time of publishing