How many ETFs do I need to be diversified?

You usually do not need many products. A global stock ETF plus a high-quality bond ETF already provides broad diversification. Most diversified portfolios are built from two to four broad, low-cost funds rather than a long list of overlapping holdings.

Does diversification always reduce investment returns?

Diversification can lag the single best-performing market over a period because it spreads exposure across assets and regions. In exchange it typically reduces reliance on any one country or sector and can soften drawdowns, which helps many investors stay invested.

Do I need to diversify across multiple brokers as well?

Most investors do not need many different brokers. Using one or two solid, regulated platforms is usually enough, with diversification coming from the mix of funds inside the account rather than scattering small positions across many providers.

STUDY

Diversification That Helps

Q: How often should I rebalance a diversified portfolio?

For a simple mix of broad stock and bond funds, many investors rebalance once a year or when allocations drift beyond predefined bands. Frequent rebalancing is usually unnecessary; the important part is having a rule and following it consistently.

“Don’t put all your eggs in one basket” is vague. This study shows what actually changes when you move from a 100% U.S. stock portfolio to a simple diversified mix.

Educational content only. Not personalized investment or tax advice. Past performance does not guarantee future results.

TL;DR

100% U.S. stocks can deliver higher growth in strong periods, but drawdowns hit harder.
A simple mix (U.S. + international + bonds) typically smooths the ride and reduces worst losses.
The real win is behavioral: pick a mix you can hold through ugly years.

Method

We compare a concentrated U.S. stock portfolio to a simple diversified mix, both built from broad index-style exposure:

100% U.S. Stocks: U.S. total market / S&P 500–style index exposure (SPY-like).
Diversified Mix: 60% U.S. stocks, 20% international stocks, 20% investment-grade bonds, rebalanced annually back to target.

Data is modeled on monthly total returns (price + dividends) in USD, with taxes and fund expense ratios ignored so you can isolate the impact of the mix. Both start at 1.00×.

The chart and table use stylized 2015–2024 paths to highlight the trade-off between concentration and diversification. They are not a precise backtest of any single ETF.

Notes

Both portfolios stay fully invested; only the asset mix differs.
The diversified portfolio is rebalanced once per year back to 60/20/20.
Different time windows and fund choices change exact numbers; the growth vs drawdown trade-off is the point.
Educational illustration only. Not personalized investment advice or a guarantee of future results.

Key chart

Normalized growth of 100% U.S. stocks versus a 60/20/20 diversified mix. Both start at 1.00×. The gap shows how much upside you may trade for smaller drawdowns and a smoother ride.

Stylized chart for intuition. Real outcomes depend on the market path, inflation, fees, taxes, and rebalancing implementation.

What the data says

In this pattern, U.S. stocks pull ahead over time but suffer deeper holes during bad periods. The diversified mix grows more slowly, but tends to fall less when things break.

The important point is not “which line wins by a few points.” It’s whether the drawdowns are small enough that you actually stay invested and keep contributing.

The summary below matches the chart’s logic: higher CAGR with deeper pain for 100% stocks; lower CAGR with shallower pain for the mix.

When diversification really helps

You know you won’t hold through a big equity drawdown without panic-selling.
Your savings rate is strong; protecting the snowball matters more than maximum upside.
You want multiple drivers (U.S. vs international, stocks vs bonds) instead of one bet.
You prefer slightly lower returns you can stick with over “optimal” returns you abandon.

When diversification can feel disappointing

You benchmark yourself to the single hottest recent market instead of your own horizon and risk capacity.
You’re very young, highly risk-tolerant, and your main risk is undershooting growth.
You buy many overlapping funds and pay extra fees for fake diversification.
You expect diversification to eliminate crashes; it can reduce pain, not erase it.

Diversification shapes the distribution of outcomes into something you can live with for decades. It does not prevent losses.

Summary

Series	CAGR	Max DD	Worst 12-mo
100% U.S. Stocks	≈11.5%	≈−23.0%	≈−18.0%
60% U.S. / 20% Intl / 20% Bonds	≈9.5%	≈−16.0%	≈−12.0%

Stylized numbers consistent with the 2015–2024 chart path. Real results depend on funds, rebalancing, fees, taxes, and start/end dates.

CLUSTER

Next steps: build a diversified portfolio you can maintain

Diversification guide Learn

The practical rules: what to diversify, what to ignore, and why.

How to choose a world ETF Learn

A one-fund global default (MSCI World vs FTSE All-World) done correctly.

Three-fund portfolio (UCITS) Learn

If you want a structured plan: global equity + bonds + rebalancing.

US vs global: where to invest first Learn

Concentration risk and simplicity: a practical decision framework.

CLUSTER

Next steps: make diversification work in real life (costs + rebalancing)

Fees really matter Learn

Diversification fails when friction makes you stop contributing.

Rebalancing (no stress) Learn

Simple rules to keep allocations from drifting into accidental bets.

Study: annual rebalancing Study

What happens when you rebalance yearly instead of “never touching it.”

Tracking difference vs TER Learn

The “real cost” of diversification shows up in tracking, spreads, and taxes.

FAQ

How many ETFs do I actually need to be diversified?

Not many. A broad global stock ETF plus a high-quality bond ETF is already real diversification. Most good portfolios use two to four broad funds, not a long list of overlapping products.

For practical portfolio building, see Diversification That Helps (guide).

Does diversification always reduce my returns?

It can lag the single best market over a given decade because you spread exposure across assets/regions. In exchange, you reduce dependence on one bet and often soften drawdowns.

If diversification lets you stay invested, it can improve your real-life results even if the headline CAGR is slightly lower.

Should I diversify across many brokers as well?

Usually no. For most investors, one solid regulated broker (or two for redundancy) is enough. Diversification should happen inside the portfolio, not by scattering small positions across many platforms.

Use the Brokers hub to pick a platform that supports low-cost ETFs.

How often should I rebalance a diversified portfolio?

Many investors rebalance once a year or use simple drift bands. The point is having a rule and following it, not constant tweaking.

See Rebalancing: Once/Year vs Never for the trade-off.

Implement diversification with a small number of broad funds you can hold for years.

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Educational content only. Not personalized investment or tax advice.

Investments can lose value and past performance does not guarantee future results. You are responsible for your own decisions and for confirming tax and legal rules in your country.