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How Many Retirement Holdings Do You Need? Depends Who You Ask

Some readers favor the flexibility of a sprawling portfolio, while others prefer a simpler approach.

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"How many retirement holdings do I really need?" It's a question all retirement savers need to ask themselves at some point.

For some investors, the number of holdings isn't so much a conscious choice as the result of investing decisions made over time. In the interest of diversification, an investor may hold dozens of different stocks, mutual funds, or ETFs designed to provide targeted exposure to different areas of the market. Or the investor may see owning a large number of holdings as a way to diversify away the risk of any one holding underperforming and weighing down the portfolio.

But with a large number of holdings often comes complexity, making the portfolio more difficult to manage than one streamlined into just a few well-diversified funds. Yet, the streamlined approach has its shortcomings as well, especially for investors who prefer a portfolio that allows them greater control over allocation decisions.

Last week, we asked Morningstar readers how many holdings they have across all their retirement accounts. The responses were truly eye-opening in terms of the sheer range of numbers. Some said their retirement savings is invested in just a few holdings, while others said their holdings number in the triple digits. But it wasn't just the numbers that made for such a fascinating discussion (you can read the full thread here). It was also readers' explanations as to how and why they'd gotten to those numbers. The following are excerpts from the conversation.

'I Wouldn't Sleep Well Without a Good Amount of Diversification'
Many of those responding were near or in retirement and had amassed sizable retirement portfolios and multiple retirement accounts. As such, many also had amassed large numbers of retirement holdings.

"I have 62 holdings (excluding cash) in retirement accounts from four companies," wrote wbarnesjr. "The key to managing these holdings is my Excel spreadsheet where I group and track holdings by allocation--U.S. bonds, U.S. stocks, U.S. real estate, commodity, foreign bonds, and foreign stocks. ... I review weekly and rebalance as required. I use Morningstar [X-Ray tools] to check overlap."

"About 90 stocks and 50 bonds (half muni, half corporates)," reported rgarneau." I wouldn't sleep well without having a good amount of diversification across multiple companies/sectors."

JBP57 said he and his wife have more than 50 holdings spread out over multiple IRAs and taxable accounts, but he doesn't seem to mind the complexity.

"I believe in being with well-diversified with our investments," he said. "... Investing in mutual funds is a hobby of mine and I've done this for about 25 years. I really enjoy doing the research, building portfolios, and seeing how they fare in the ups and downs of the market."

Readers with a high number of holdings offered a variety of different takes on why they've chosen to allocate their portfolios this way. For bluepacific, it's about the role each holding plays.

"My husband and I are in our early 60s and have 43 holdings spread across six accounts at three brokerages," she said. "We picture each account (and each holding in the account) as having a particular 'job.' We limit the number of holdings to less than 45 simply because management gets too time-consuming to be cost-effective. We eliminate holdings if they are not doing the 'job' we expected of them. ... I know it's complex, but I consider the time spent managing it as if I was a consultant hired to do that."

'209 holdings'
Of course, what one investor considers a sprawling portfolio may seem rather compact to another. In fact, by investing in individual securities as opposed to funds, the number of holdings in a portfolio can easily expand by two or three times, if not more.

For example, take REti59, one of a handful of readers whose holdings exceed 100.

"115 holdings between three Roth IRAs," Reti59 said. "I wanted a variety of certain individual stocks, ETFs, and mutual funds for their sector and dividends, but no duplicates. ... Anytime I saw a stock/ETF of interest, I bought it on the dip, but I am done for now."

Among the highest number of holdings mentioned by any reader was that described by ctyankee, who said, "I have 11 tax-deferred accounts with five firms with a total of 209 holdings (not counting cash). That's a reduction in accounts after consolidating several within Vanguard. These were mostly small fund companies that I invested in back when IRAs were first introduced."

In some cases, readers said they seek to diversify their portfolio not only through the number of individual holdings but by owning them across multiple providers.

"Some will think it's diversification overkill, but I spread my total nest egg across three major investment houses and two banks," said DBSMichigan. "I track everything easily on an Excel spreadsheet updated monthly. I typically hold 15-18 mutual funds or ETFs, with 2-3 alternatives in each broad category in case any one of my carefully selected, consistently outperforming fund managers somehow falls off a cliff."

In some cases, readers' retirement holdings had grown in number by accident.

"It wasn't planned. It just happened ," wrote Mustang. "And, even though I've been simplifying it, it is still more complicated than I wish. We have 15 funds in 10 accounts with 4 companies. These consist of taxable, Traditional IRAs, Roth IRAs, a 403(b) and a variable annuity."

For Chief K, the number of holdings in his portfolio is simply "more than I'd recommend. But they all seemed like good ideas at the time."

For tips on combating portfolio sprawl, see this article by Christine Benz, Morningstar's director of personal finance.

'Taking Operator Error Out of It'
While many posters described retirement portfolios consisting of scores of holdings, others said they use a more streamlined approach.

"My husband and I have 14 mutual funds across two 401(k)s, one Roth 401(k), two Roth IRAs, and one Traditional IRA," wrote Cherie. "... To mitigate the risk of a sprawling portfolio, I have followed Morningstar's advice and selected the best available funds for each 401(k) and then use the brokerage IRAs to further diversify. I have also used the intersection tool [in the Morningstar X-Ray tool] to ensure that the funds I select are not carbon copies of others within our portfolio."

Some readers, in fact, said they'd recently reduced the number of holdings in their retirement accounts. Noonakasmis wrote, "Eight holdings across five retirement accounts. We had 20-plus and consolidated over the last couple of years. Concentrate on the best of the best. Easier to manage (and move in and out when warranted)."

"I have six retirement accounts: two Roth IRAs, a Traditional IRA, a rollover IRA, a 401(k), and a brokerage window for that 401(k)," said Carrie. "Within those accounts, I have 16 holdings, not counting cash, and counting the same investment in multiple accounts only once. On the whole, the portfolio is much pared down from the last time you guys asked a question like this, when I think I had closer to 30 holdings."

For reader mickeg, keeping his retirement portfolio simple is a priority.

"I never want to have more holdings than I can quickly list from memory," the commenter said. "I never want to own anything that I can't explain why I own it in a couple sentences. Right now that adds up to eight funds and ETFs, not counting money market funds. At times that number is bigger, at times smaller. But it generally is at least five but almost never exceeds 10. The number varies as I shift my asset allocation over time."

Even among the streamliners, there were those who had unusually compact retirement portfolios. For example, srercrcr said he or she has just six holdings across four retirement plans.

"One way to keep [the number] down is have a large holding in an index fund and let the others be the 'sweeteners,'" he wrote. "I sleep better when the bulk of the holdings is matching the market, whether positive or negative. That takes 'operator error' out of it."

Dennygal outlined one of the more unusual--and most concentrated--retirement portfolios of any of the commenters. "I use a concentrated portfolio of 12 individual stocks," she said. "My average holding period per stock has been about 30 months over the years. The capitalized value of a defined-benefit pension plan and Social Security are my 'bonds.'"

When it comes to minimizing portfolio sprawl, it's tough to beat the approach taken by Pitcher, who said he or she owns just three funds, the allocation funds  Vanguard Wellesley Income (VWIAX) and  Vanguard Wellington (VWENX), and the large-blend  Vanguard Dividend Growth (VDIGX).

But for the ultimate in simplicity, no reader could touch farhorizons, who said he and his wife own just one fund in their IRAs, which they plan to pass on to their heirs one day:  Vanguard Total World Stock ETF (VT).

"It's an extremely inexpensive way to get a completely globally market-cap-balanced, low-cost, all-stock investment and saves me from any thought whatsoever," he wrote. "With a dividend reinvestment plan, I could go into a coma for 20 years and be confident that the portfolio would be great when I woke up. Sadly, I've had to build a close equivalent in my workplace Roth 401(k) plan via Vanguard admiral shares at various percentages, but someday a rollover will fix that."

'Return Is More Dependent on What You Hold'
In some cases, readers said that diversifying a retirement portfolio through the sheer number of holdings can be counterproductive.

Jomil said he or she owns just four funds across an IRA and taxable account, and one of those is a money market fund. "I have found that portfolio return is more dependent on what you hold than the number of holdings," jomil wrote.

Owning a slimmed-down portfolio has certain advantages, some readers said.

Enoui reported paring down his portfolio to its current 11 mutual funds after retiring and after an analysis using Morningstar's X-Ray tools showed too much duplication. "The aim was simplicity and choices that I could hang on to with little change despite the ups and downs of the daily markets," the commenter said.  

But for photoman, the decision to reduce the number of holdings in his retirement accounts wasn't just about making his life simpler, it was also made with others in mind. Plus, performance has actually improved.

"[In] August of 2013 I reduced my holdings from 33 mutual funds, ETFs, and individual stocks to four plus three stocks," he wrote. "I wanted to simplify my holdings as I approached 75 years. ... For the past 12 months the more complex arrangement increased 10.5% and the simple portfolio increased 13%. My main goal was to make it easier for family to understand and handle the holdings in the future. I had a strong suspicion that the more complex portfolio was not any better than one of more simplicity but only made me feel more in control. That has been borne out so far and I have more time without the complexity."

Some comments have been edited for clarity and brevity.

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Adam Zoll does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.