Exactly how many ETFs should we own if we plan on retiring early and retiring rich.

Together, We're going to answer this question right now.

Hi everyone, welcome back to start here the very special mini series within Sugar Mamma's Fireplay, where I answer your real life money questions with practical steps to help you get started with clarity and confidence.

Now, today's question is actually one that I get asked all the time, not just from listeners who are building their share portfolio, but also my own friends.

So this particular DM was sent to me.

It said, Hi, Canna, I'm building my share portfolio and I want to know how many ETFs or listed investment companies I should own already own WHF, WHI, SOOL, SOL and the ETF VHY should I add more or should I focus on owning more shares in these current investments?

Now, this is such a brilliant question because it touches on something that many investors don't realize until it is too late, and that is, you can absolutely over diversify your investment portfolios.

And when that does happen, it actually can dilute your performance.

It really does complicate your portfolio.

It creates duplication.

Throughout the portfolio, and it also creates a whole pile of unnecessary life admin few which can also cost you time and money, particularly if your accountant is billing by the hour.

So today, together, I'm going to go through and break down how many ETFs and listed investment companies you might actually need to own, and whether you need to look at adding more or whether or not you just need to just hold tight with what you've got to build that up.

I'm also going to share with you what the actual research says from the experts, and that being Vanguard and morning Star.

But I'm also going to share with you a very powerful strategy called the core Satellite strategy, and I'll explain in a very simple, actionable manner.

In fact, it's something that I use myself for my own share port follow and even the thousand dollars Project share Portfolio.

I'm also going to share with you how to avoid that accidental duplication, which we're all guilty of and innocently happens, particularly when we're starting up, and then what to do if you realize you're actually over diversified.

And this is where we'll cover the practical steps to help fix that situation, but help make sure that you are moving with confidence as you build your long term, growing passive income.

So before we begin, a reminder obviously everything is general advice.

I'm not going to give you product advice, investment advice, or strategic advice.

This is very very much under the idea of education, and of course always go and speak to a financial planner when in doubt.

All right, now that's done, let us begin.

So the first step is to actually understand what you already own within your share portfolio.

So before you go and rush out and buy anything new, you've got to look at what you already have inside your investment portfolio.

Now, this particular listener mentioned that they own Whitefield, They own the white Field Income listed investment Company, They own Soul, which is a bit of a conglomerate, and then they own the ETF VHY.

Now these are all high quality Australian investments.

And the thing that stands out to me, not necessarily as a red flag, but something that awareness is needed is they all swim in the same pond.

That is, they are all Australian equities.

They are all large cap, predominantly industrial focus companies, which I love.

They all pay dividends, and they all have a strong income tilt, which is great if you're building that financial freedom through passive income and dividends.

But they also have very little international global exposure.

So if you jump onto each of the farm manager's website, but it be Whitefields, whether it be Vanguards or the sole website, you'll see that they often hold very similar businesses.

You know, Vanguard and you know, say Whitefield might own all of the same banks, all of the same supermarkets, all of the same infrastructure, and you know, transportation companies, all those sort of major domestic companies.

You'll see that it looks very similar.

So what I see here as being the biggest risk isn't actually the quality.

These are all excellent long term, high growth investments.

The issue I see here is actually the concentration.

If your goal is to build a well rounded, resilient portfolio, adding more Australian focused listed investment companies or ETFs, that is, new ones may not necessarily add any great value to your portfolio.

In fact, you might actually be multiplying you know what you've already got, which then brings me to the most important step, and that is a risk profile.

Checking for any missed asset classes that might be appropriate for you, your comfort levels, and of course those really important financial goals of yours.

So this is why I recommend to everyone you do a risk profile.

When you take the time to do a risk profile, which can take literally twenty minutes, there are hundreds of them online, it's free.

I recommend doing it a couple of times and even doing a couple of different ones.

But when you do a risk profile, it really does make you look at things from a different angle, which I think is really powerful.

So it makes you look at you know, how much risk you are actually really comfortable taking.

A lot of us think, oh no, I'm fine, I'm not really worried.

But when you actually sit down and answer these questions, sometimes your answers can actually quite surprise you.

It also makes you really think about the time frame.

Yes, you might be a high growth investor, but your time frame in needing that money, such as paying for a deposit on a home loan, may actually be short term, so that having a high growth portfolio may actually not be right for you in this particular money right now in your life.

It also makes you get really clear and articulate to yourself, what your financial goals here?

What is the purpose behind this share portfolio?

Is it to build up a lump sums that you can use that to pay for a deposit or wipe out debt, or is it to build that passive income streams that covers your living expenses.

So it does force you to really get clear with your goals, which is always a wise move.

It then allows you to see what your tolerance levels are for volatility investing in shares, whether you're using ETFs or listed investment companies, are still considered high risk, highly volatile investments, particularly over the medium or short to medium term.

And doing the risk profile, once you do all the questions and it spits out the answers, it gives you a really great guide as to the right blend of asset classes that suit you, your time frame and the goals for you.

So this is really important.

If you haven't done one yet, go and do one the moment this podcast is finished, I'm going to go link a couple in the podcast notes for you.

And this is really where so many people go wrong.

You know, they jump in, they're so excited to start investing, and they think, oh yeah, I'll just go with like Whitefield, or you know, I'll go with this Vanguard one because you know, I've heard Canna mentioned she owns this, or I've heard this financial influence.

I mentioned they bought it the other day.

So I'm just going to do what they're doing.

Like that is not what I recommend.

I recommend you do a risk profile and then you do your research.

But what tends to happen I see this all the time is you know, you jump in the deep end and you buy the ets without really actually taking time to understand whether it's right for you.

And this is why you need to look at the asset allocation.

You know, for this particular listener, I have no idea what profile is.

I don't know how much money is in the share portfolio.

I don't know what their goals are.

I don't know what the deadline is for these goals.

But I would recommend asking yourself, am I missing international shares?

AM I missing emerging markets?

Am I missing maybe some global small caps?

Maybe I do need some more conservative, smoother investments like bonds or fixed interest, or perhaps I need some listed property or infrastructure.

These are the questions you've got to be sort of asking yourself before you had anything new to your portfolio or even get started.

You know, for so many investors, particularly ones who own lots of Australian shares, the biggest gap, the biggest piece of the puzzle that's missing in their portfolio is quite often that international diversification.

So ask yourself this, do I need something new or am I actually just duplicating what I already own?

And this question alone can save you years of confusion and unnecessary investments and a huge inefficient waste of time and money.

So have a look at what is missing.

Once you know what we your risk profile is, and that will help you work out what are the other gaps in your portfolio you can start to fix with new money.

But I will come to that in a second.

The next thing I'd also be doing is thinking, well, okay, ETFs are pretty well diversified.

You know, you're taking one big box with just one listed investment company or even an ETF.

So how many ETFs and listed investment companies should you actually own?

Now this is goto.

There's a lot of people different answers and opinions, and I'll even share with you what I've got as well.

In a second but Vanguard and morning Star, which I think are very reputable sites with huge amounts of experience, both suggest that most investors only need between five to ten ETFs, including listed investment companies, to be properly diversified, and in most cases investors actually can afford to have say two or three ETFs listed investment companies.

So, to answer your question, more ETFs doesn't actually mean better diversification.

In fact, it can sometimes mean the opposite, which we call in financial planning deversification, and that is where you've got lots of the same holdings overlapping through the same but similar products, and they're adding no new value, no new benefit, and absolutely no new efficiency to your portfolio.

You know.

Classic examples are like vas IoZ STW.

You know, if you're buying these and they're in your portfolio, you're essentially buying the same investment, but in four different packages.

You know they're holdings, their underlying investment portfolios are almost identical, and you can clearly see this for yourself by comparing the fund's top holdings simply on the fund manager's website, which is easily accessible.

And this is why the thousand dollars Project portfolio works so well.

Because I own a maximum of seven listed investment companies and ETFs, I am not at the stage where I'm adding any new products whatsoever.

Instead of what I'm doing now is actually building up what I already own with consistency.

So as a quick insight, my listed investment companies give me that Australian equity exposure.

My ETFs, not all of them, but most of them, like ninety percent of them give me that exposure to my international asset class.

So coming back to this, instead of you know, asking yourself, you know, how many should I own?

Instead I would be asking myself, all right, what role does this ETF or listed investment company play in my portfolio and my goals?

How does it you know, adding something new add value to my portfolio?

And most importantly, does it actually align with my risk profile?

Here, you know, this can quickly help you work out whether proceed ahead or whether just to look at perhaps a different investment or build up the amazing work that you've already done.

You want to make sure that you are picking investments that actually are working for your goals and taking you closer and closer to success.

Now, there is a very powerful strategy called the core satellite strategy, and this is my favorite approach for everyday investors because it keeps things really simple, It keeps your portfolio nice and strong, but it also allows a bit of flexibility, particularly if you want to get a bit creative or a bit more daring, as your level of experience and understanding naturally increases over time.

So let's break this down clearly together.

So the core that is the foundation of your investment portfolio, then the bulk of your foundation, you know, and this could be anywhere between sixty to ninety percent of your portfolio.

This is where you reserve it for really will diversified investments.

You keep it nice and simple, very much that Warren Buffett long term buy and hold very low cost, which is where you know ETFs and listed investment companies can be great because they're incredibly competitive.

And these are the investments that are designed to like quietly compound in the background for you and you know, work their magic for you while you focus on earning extra income that you can then put towards the portfolio.

And classic examples of this for me in my portfolio are white Field Soul, even some of my Vanga diversified international ETFs.

You know you've got vEDS, you've got IVV, You've even got the high growth diversified ETFs like vd HG.

So that is the core, that is the foundation of your portfolio.

And you know, the core is where you get that Australian international possibly like developing markets, emerging markets, and even maybe some bonds depending on your risk profile.

And you know, I love this part of my portfolio.

It's the backbone of my portfolio and I'm grateful for the consistency that it gives me.

Then there is your satellites, and this is where your reserves say ten to a maximum of forty percent to really targeted personal investment selection.

It's where you can like customize your portfolio and add a bit of personality to your share portfolio.

For the record, I think there's a maximum of maybe twenty to twenty five percent of the thousand dollars project diversified portfolio that's exposed to the satellite.

So the satellite investment options include like sector based ETFs, like ETFs that specialize say in healthcare or tear or cybersecurity or clean energy.

Then you've got your country based ETFs, so ETFs that focus on one area such as like South Korea or India or Japan.

Then you've got thematic ETFs, so you know robotics, automation, esg, cryptocurrency exposure, even some of the geared ETFs.

For example, one of the ETFs which is where I have some exposure to gearing through an ETF is actually and it is Australian base, but it's the gear based ETF which is the ticker is g E A R SO.

And then you of course you can then go and pick those individual companies that you love, those individual stocks.

You might want to own some Extra an Z for example, or you might want to own some Woolworth stocks you know that you might be I want to own, you know, say a transportation company that you know, companies that maybe perhaps you use, you really love or you really believe in.

You can see there are a lot of really exciting things ahead of them.

That's what you preserve for your satellite exposure.

And you know these are high conviction listed investment companies even and you know dividend focused investments as well.

You know it doesn't just because it's risky still may mean it pays a dividend, so it can actually work and actually over time it can be potentially part of you know, your core if it does very well, so your satellites and often will overlock lap with your core.

And that is perfectly fine as long as it's intentional.

You know, for example, you've got VDHG, which includes some global tech.

You've then got NDQ, which is one hundred percent NASDAK.

So yes, technically you are doubling up, but you're doubling up intentionally you've decided that's what you want.

And it is exactly the same with listed investment companies.

You know, I own Whitefield.

I have a large exposure to Whitefield, and within that Whitefield holding, they own lots of the banks, and I own those banks individually as well because I like that.

I want that and that works for me.

So not necessarily duplication for me, because it's part of my strategy.

But here's the rule, it's got to be intentionally duplicated.

Accidental duplication is never a good idea.

That's being naive, that's being ignorant, that's not doing your research properly.

So step five and that is, I guess doing a bit of a cleanup.

You know what, if you've already over diversified your share portfolio.

You jumped in the deep end, you bought to say ten, fifteen, twenty, even different.

This is investment companies and ETFs, and you're realizing, oh my goodness, no wonder, nothing's really happening with my portfolio.

I've over diversified.

Ken is talking about these diluted returns, and that's what I've been seeing.

No wonder, I've been scratching my head.

Now, don't be embarrassed, don't be ashamed.

It's happens.

It's very common.

You know, there's no shame at all.

It's just done.

But there's lots of things we can actually do.

We've got options to help clean it up if we need to.

So option number one is to keep everything as it is, but just stop adding to the clutter.

So don't add any new ETFs or listed investment companies to your portfolio.

And the benefits of doing that are obviously there are no tax consequences, no selling expenses like brokerage, and you've put no administration headaches, and you can just perhaps redirect any new money that you're going to invest into your intentional, chosen core investments and even maybe some satellites if you want to sort of start getting a bit more sophisticated with your portfolio.

Option number two and that is to consolidate into a smaller number of ETFs and listed investment companies.

Now, this can be really helpful if you have way too many products all doing the same thing.

However, the issue here is you are potentially going to be triggering capital gains tax if you've made a gain, or crystallizing a capital loss if you've that investments have actually gone down in values.

You've got to plan very carefully and always obviously get advice when in doubt.

So this is a way of I guess, facing the noise, accepting you've got it wrong, and just doing a massive detox, you know, a deep clean and getting your portfolio cleaned up back on track, and then you can just keep it going as it is.

It is cathartic, you know.

It is does feel nice to have that sense of clarity back in your portfolio, knowing that it's now set up correctly and you just need to add to it as you go by.

It really does come down to personal choice.

But there actually is a third option, and this is one that I would probably lean to myself.

Personally, and that is transitioning gradually over a period of time, say six to eighteen months.

Now, the benefit of doing this is you can actually spread out the brokerage costs, you can spread out the triggering of tax, potentially make the most of say fifty percent capital gains tax discount or offsetting the losses against other future gains.

And it actually does allow a far calmer, more methodical, intention decision making process.

And often the simplest strategy is, you know, just stop contributing to anything new and then obviously clean up, make those adjustments slowly and steadily, maybe spread it across a couple of financial years, and then make sure that any new money you've got, you know, you funnel into the right investments that need your attention or perhaps you know, creating that core satellite strategy with that new money.

But you've got to remember, like building wealth doesn't actually ever require the most perfect investment portfolio.

If you want to succeed financially as an investor, the best thing that you can be is be consistent and be intentional with your investment decisions and your contributions, you know, adding as much as you can when you can safely afford to and of course reinvesting everything back into the portfolio for compounding growth.

It's really as simple as that.

Don't try and be a Warren Buffett, don't try and be a fund manager.

Don't try and be this like sexy sophisticated like day trader.

Stick to what is easy, what is simple, and what you're going to really enjoy growing over time.

And then that brings me to step six, and that is your personal framework for making these decisions.

You know, before you buy any ETF or this investment company, ask yourself, does this investment match my bridge profile?

Does it match my required asset allocation?

Know?

Does this actually add to my portfolio?

Or am I actually spreading my investments too thinly?

And importantly, can I actually explain to myself what this ETF invests in?

You know a lot of people will just go with, you know, ticker codes that they see on people's screens or especially financial influences.

They'll just copy, but they have no idea really what they've actually purchased.

And I will know this myself when people tell me about their portfolios, because they'll just say the ticker code.

They don't know what the ticker code actually stands for what that particular company does.

Please don't be like that.

Know where your money is going.

You know, you want to ask yourself, does this investment move me closer to my goals?

Is this intentional?

Or perhaps I'm being a little bit impulsive, And you know, is this investment going to form part of my core strategy or my satellite strategy?

And of course I want to make sure that you build a portfolio that you can manage without any stress, with minimal expense, with minimal or no headaches whatsoever, where you can really clearly see the passive income the dividends growing consistently year after year well into the long run, because that is ultimately what's going to give you that financial freedom.

So to answer yes to most of these questions that I've just listed out, well, then yes, you sound like you might be on the right track with picking the right investments for you.

If not doesn't mean don't invest, It just means do your research, reassess, and of course, when in doubt, go and speak to a financial planner and get them to look at the portfolio and to give you some feedback or some ideas, and they can of course draw up a statement of advice and give you clear recommendations what stocks, what to ETFs, what listed investment companies.

They can do it all for you and even implement it.

So as I wrap up today's episode of Start Here, please know that you do not need dozens of ETFs or listed investment companies to build wealth and financial freedom.

You don't even need ten.

As I said, I've got a total of seven, and that includes both listed investment companies and ETFs.

What you really need is that clarity, that consistency, a really strong diversified core, those sexy, exciting, creative satellites, which of course are always invested in intentionally without a doubt, the discipline and motivation to build something powerful for yourself, just like I've been doing with a thousand dollar project.

It's all about those simple, small, repeated contributions that add up to something extraordinary.

So please note that if you've built a portfolio and it's looking a little bit messy and over diversified, it's not too late to make some changes.

You're not behind, and you can very easily adjust it.

You can adjust it immediately, you could adjust it over time, or you can just leave it as is.

This is all about your goals, your strategy, your money, and your financial future.

Now, if this episode helped you, can you please do me a huge favor and share it with someone who you know is trying to build a share portfolio and is feeling perhaps a little bit confused, or in fact, maybe you're worried that they are owning and shopping and buying too many different investments and not actually adding any value and getting close to the goals.

Send them this episode, and of course please make sure you are following this show and I will be back on Monday as part of our normal Sugar Mamma's fireplay every Monday morning at five am.

This is start here as part of Sugar Mama's Fireplay.

See you on Monday.

Chow for now,