When you start investing seriously, one question keeps coming back: should you hold several ETFs, or is one enough? The right question is never "how many to own", but "what does each additional ETF actually add to my portfolio".
Many people instinctive answer is to accumulate them, out of fear of lacking diversification. That is often a mistake. If a new ETF brings nothing you do not already own, it is not diversification: it is redundancy. This article offers the reflection to carry out before adding a fund, the truth about fees that is often understood backwards, and a simple framework to determine the number that suits your situation.
A single ETF is not a concentrated portfolio
The first idea to correct is the one that makes beginners panic: "if I only have one ETF, I am not diversified". That is false. An ETF is not a stock. It is a basket. A single broadly diversified ETF can contain hundreds, even thousands of companies spread across several countries and several sectors. Holding that single fund already means owning a fragment of almost the entire global economy.
In other words, diversification is not measured by the number of ETFs you hold, but by the number of underlying securities you are exposed to. You can be perfectly diversified with a single fund, and terribly concentrated with five funds that all hold the same technology giants.
The overlap trap: false diversification
This is where the real risk of multiplying ETFs lies, and it is not the one you might think. When you hold several ETFs, they often overlap. A technology fund, a U.S. equity fund and a global fund all contain, to varying degrees, the same large caps. You believe you are spreading your risk across three funds, but in reality you are reinforcing your exposure to the same few companies.
This is what is called false diversification: the feeling of being protected, without the real protection. The portfolio looks varied on the statement, but if these common companies stumble, the three funds plunge together. The rule to remember is simple: each ETF you add is only worth it if it exposes you to something you do not already own. An absent region, an absent asset class, an absent market segment. If it merely duplicates what you already hold, it adds complexity without adding protection.
The truth about fees: it is not the number that counts
Many investors avoid multiplying ETFs thinking they are avoiding fees. The intention is excellent, but the reasoning deserves to be clarified, because it misses the target.
Holding several ETFs does not multiply your fees. On a low-cost platform such as Wealthsimple, in self-directed mode, buying and selling ETFs is commission-free. And the management fee specific to each fund, the management expense ratio, applies only to the portion of your money invested in that particular fund. Three ETFs therefore do not add up to three times their fees: you pay a weighted average of their respective costs. You could very well hold five inexpensive funds for less than a single expensive fund.
The determining factor, then, is not the number of ETFs, but the expense ratio of each. And this is where an important nuance applies for those who invest by sector: sector ETFs, those that target only health, technology or financial services, almost always carry higher fees than the large index ETFs covering the whole market. The real fee savings do not come from having few ETFs, they come from choosing ETFs with a low expense ratio. To dig deeper into this point, see our article on investment fees.
Why a few dollars of fees change everything
If there is one thing to absorb deeply, it is that fees act exactly like savings, but in reverse. The same compounding effect that grows your investments year after year also grows the cost of the fees you pay. A percentage that seems tiny today becomes, over two or three decades, a considerable sum subtracted from your final wealth.
A gap of barely one percentage point of fees per year, applied for twenty or thirty years to a growing portfolio, does not represent a few hundred dollars. It can represent tens of thousands of dollars of lost return, because every dollar taken in fees is also a dollar that can never compound for you. It is precisely the same mechanism that turns a modest $20 per month into a surprising sum over time: consistency and duration amplify everything, the good and the bad.
To see this force concretely, I invite you to use our compound interest calculator and compare two identical scenarios while changing only the fee rate. The gap will surprise you.
This is why a serious investor tracks fees on everything: account management fees, fund expense ratios, transaction fees. Not out of stinginess, but because they know that over a long horizon, these small leaks end up costing a fortune.
Two valid philosophies, to choose deliberately
There are two main ways to structure an ETF portfolio, and both are defensible. What matters is knowing which one you adopt and why.
The first is the single all-in-one fund approach. A single broadly diversified ETF, at very low cost, that contains the global market and rebalances automatically. It is the purest expression of simplicity and fee minimization. You no longer think about allocation: the fund takes care of it. It is the ideal option for those who want to invest without actively monitoring their holdings.
The second is the conviction approach, by sector or by theme. You deliberately choose the segments you believe in, you weight them yourself, and you take on a more concentrated, more active, and often slightly more expensive portfolio. It is a legitimate choice, but you must recognize it for what it is: it is not a passive fee-minimization strategy, it is a deliberate bet on certain parts of the economy. Someone who invests by sector is not trying to replicate the market, they are trying to beat it on the segments they have chosen. This requires conviction and a tolerance for the fact that these sectors can underperform for years.
Neither is superior in absolute terms. They answer different temperaments and different goals.
The thinking framework: three questions before adding an ETF
Rather than aiming for a magic number, ask yourself these three questions each time you consider adding a fund:
- Does this ETF expose me to something I do not already own? If its holdings largely overlap with those of my current funds, it brings no diversification, only redundancy.
- Is its expense ratio justified by what it adds? A more expensive fund must offer a genuinely unique exposure to earn its place.
- Am I able to track and understand what I hold? A portfolio you no longer understand is a portfolio you end up managing badly. Simplicity has value in itself.
If a new ETF does not pass these three filters, it probably does not deserve to be added.
In summary
The right number of ETFs is not a universal figure. It is the minimum number that gives you the exposure you want, without needless duplication and without superfluous fees. For many, that number is surprisingly small, because a single well-chosen fund already accomplishes a great deal.
What matters is not owning many to reassure yourself, but understanding precisely what each one brings, watching their fees like a guardian, and remembering that over the long road, every dollar saved in fees is one more dollar working for you.
This article is strictly educational and does not constitute financial or investment advice. Every situation is unique and carries its own level of risk. It is recommended to consult a qualified professional before making any decision affecting your investments.