Is it okay to invest in one ETF?
Fewer than 10 ETFs is likely enough to diversify your portfolio. ETFs are wonderful instruments offering diversification at a minimal cost. Indeed, ETFs are investment vehicles containing many investments and are therefore already diversified.
The majority of individual investors should, however, seek to hold 5 to 10 ETFs that are diverse in terms of asset classes, regions, and other factors. Investors can diversify their investment portfolio across several industries and asset classes while maintaining simplicity by buying 5 to 10 ETFs.
“Because leveraged single-stock ETFs in particular amplify the effect of price movements of the underlying individual stocks, investors holding these funds will experience even greater volatility and risk than investors who hold the underlying stock itself,” the SEC said.
ETFs can be safe investments if used correctly, offering diversification and flexibility. Indexed ETFs, tracking specific indexes like the S&P 500, are generally safe and tend to gain value over time. Leveraged ETFs can be used to amplify returns, but they can be riskier due to increased volatility.
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
You should therefore only keep as many funds in your portfolio as you're comfortable monitoring. For example, if you hold 10 or 20 different funds, you'll need to keep a close eye on the changing value of all these investments to make sure your asset allocation still matches your investment goals.
If you held underlying index XYZ directly and then levered it up three times directly with your broker dealer, the losses could potentially cause your position to fall below zero. In other words, you could potentially be liable for more than you invested because you bought the position on leverage.
A single-stock exchange-traded fund allows you to leverage a single company, and potentially earn a significantly higher return. Sam Taube writes about investing for NerdWallet.
Single-stock ETFs use derivatives to provide leveraged and inverse returns on individual stocks. For example, say Tesla (TSLA) is reporting earnings and you're particularly bullish or bearish on their results. You might buy the stock or short the stock to potentially profit off your views.
Understand Unique Risks of Single Stock ETFs
While an ETF sounds like a simple “single” investment, it comes with enhanced risks; including lack of diversification, daily resets, leveraged structure, active trading needs, and compounding losses.
Is it better to hold stocks or ETFs?
Stock-picking offers an advantage over exchange-traded funds (ETFs) when there is a wide dispersion of returns from the mean. Exchange-traded funds (ETFs) offer advantages over stocks when the return from stocks in the sector has a narrow dispersion around the mean.
One way to think about it is every three months taking whatever excess income you can afford to invest – money that you will never need to touch again – and buy ETFs! Buy ETFs when the market is up. Buy ETFs when the market is down.
![Is it okay to invest in one ETF? (2024)](https://i.ytimg.com/vi/iMLHZTc-QMg/hq720.jpg?sqp=-oaymwEcCNAFEJQDSFXyq4qpAw4IARUAAIhCGAFwAcABBg==&rs=AOn4CLCDgHHS46EeYcp8DBl98jJ3w07lnA)
ETFs are most often linked to a benchmarking index, meaning that they are often not designed to outperform that index. Investors looking for this type of outperformance (which also, of course, carries added risks) should perhaps look to other opportunities.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
To generate $500 a month, you might need to build your investments to $150,000. Taking out 4% each year would amount to $6,000, which comes to $500 a month.
"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."
Some index funds provide exposure to thousands of securities in a single fund, which helps lower your overall risk through broad diversification. By investing in several index funds tracking different indexes you can built a portfolio that matches your desired asset allocation.
So, what's the magic number? There isn't a strict rule, but between five and 10 funds is usually a good idea. That lets you allocate money to different types of funds and markets without doubling up too much. It's also a manageable number to monitor and won't cost you too much in trading fees.
Too many stocks (over 30)
Lower risk of sudden and severe portfolio declines. Greater ability to diversify by industry sector and company size. Greater ability to take advantage of tax-loss harvesting.
If you buy substantially identical security within 30 days before or after a sale at a loss, you are subject to the wash sale rule. This prevents you from claiming the loss at this time.
Can an ETF drop to zero?
For most standard, unleveraged ETFs that track an index, the maximum you can theoretically lose is the amount you invested, driving your investment value to zero. However, it's rare for broad-market ETFs to go to zero unless the entire market or sector it tracks collapses entirely.
Leveraged ETF prices tend to decay over time, and triple leverage will tend to decay at a faster rate than 2x leverage. As a result, they can tend toward zero.
ETFs typically have lower expense ratios compared to mutual funds because they're more passively managed. They disclose their holdings daily, allowing investors to see the underlying assets and make informed investment decisions.
An ETF with minimal tracking error is preferable to one with a greater degree of error. Market Position: The first ETF issuer for a particular sector often garners the lion's share of assets before others jump in. It is prudent to avoid ETFs that are imitations of an original idea.
With AUM of $1 billion, Direxion Daily TSLA Bull 1.5X Shares is by far the largest U.S.-listed single-stock ETF on the market today. TSLL offers 1.5 times (150%) the daily percentage change of the common stock of Tesla TSLA, charging 95 bps in annual fees. It trades in an average daily volume of 15 million shares.
References
- https://lyonswealth.com/blog-details/how-much-money-do-i-need-to-invest-to-make-3000
- https://vericrestprivatewealth.com/leveraged-etf.php
- https://www.lazyportfolioetf.com/etf/schwab-us-dividend-equity-etf-schd/
- https://www.ajbellmoneymatters.co.uk/articles/how-many-funds-should-i-invest
- https://www.etmoney.com/learn/stocks/nasdaq-100-versus-sp-500-which-index-is-better-for-investing-in-the-us/
- https://www.retirebeforedad.com/schd-vs-vym/
- https://www.fool.com/investing/2024/02/05/warren-buffett-has-bought-more-of-this-stock-than/
- https://www.fool.com/investing/2023/12/07/better-buy-berkshire-hathaway-or-vanguard-500-inde/
- https://www.nerdwallet.com/article/investing/sp-500-etfs
- https://www.investopedia.com/articles/investing/020116/when-right-time-change-mutual-funds-etfs.asp
- https://www.fool.com/the-ascent/buying-stocks/articles/heres-what-happens-when-you-only-invest-in-sp-500-etfs/
- https://www.cnbc.com/2023/12/20/what-investors-need-to-know-about-single-stock-etfs.html
- https://www.investmentfundlawblog.com/resources/investments-by-funds/investments-investment-companies/
- https://www.investopedia.com/articles/exchangetradedfunds/08/etf-choose-best.asp
- https://www.retirebeforedad.com/schd-vs-voo/
- https://portfolioslab.com/tools/stock-comparison/SPY/VOO
- https://www.berrydunn.com/news-detail/the-risks-and-rewards-of-leverage-for-your-business
- https://www.etf.com/etf-education-center/etf-basics/what-inverse-etf
- https://www.investopedia.com/ask/answers/09/etfs-vs-mutual-funds.asp
- https://www.ramseysolutions.com/retirement/sp-500-index-funds
- https://etfdb.com/compare/highest-5-year-returns/
- https://www.bankrate.com/investing/best-long-term-etfs-to-buy-and-hold/
- https://www.thestreet.com/etffocus/dividend-ideas/schd-why-2023-has-been-miserable-for-elite-dividend-etf-how-it-makes-comeback
- https://www.turingtrader.com/articles/leveraged-etf-portfolios-2/
- https://www.nerdwallet.com/article/investing/what-are-single-stock-etfs
- https://stockinvest.us/stock/VOO
- https://seekingalpha.com/article/4634789-schd-etf-even-worse-income-investment-than-first-said-sell
- https://finance.yahoo.com/news/schd-vs-sphd-dividend-etf-185901695.html
- https://www.toptal.com/finance/equity-research-analysts/warren-buffett-investment-strategy
- https://seekingalpha.com/article/4642157-schd-10-reasons-you-want-to-buy-this-buffett-style-high-yield-etf
- https://study.com/academy/lesson/what-is-a-leveraged-etf-decay-risk-volatility.html
- https://www.investopedia.com/articles/investing/092815/risks-investing-inverse-etfs.asp
- https://www.nasdaq.com/articles/5-best-top-ranked-etfs-of-2023-set-to-soar-in-2024
- https://stockanalysis.com/etf/schd/dividend/
- https://www.forbes.com/advisor/investing/etf-vs-stock/
- https://www.thebalancemoney.com/a-list-of-3x-leveraged-etfs-1214924
- https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/
- https://curvo.eu/article/etf-risk
- https://www.themarkethustle.com/news/voo-vs-schd-which-etf-is-better
- https://moneywise.com/investing/reviews/qqq-vs-voo
- https://www.titan.com/articles/etf-drawbacks
- https://finance.yahoo.com/news/warren-buffett-really-likes-1-110700418.html
- https://www.cnbc.com/berkshire-hathaway-portfolio/
- https://www.investors.com/news/sp-500-5-stocks-with-earnings-set-to-surge-up-to-7800-all-are-near-buy-points/
- https://www.blackrock.com/us/individual/literature/fact-sheet/sma-target-allocation-70-30-etf-factsheet.pdf
- https://www.investopedia.com/articles/investing/111115/5-reasons-choose-mutual-funds-over-etfs.asp
- https://www.investopedia.com/articles/personal-finance/022216/put-10000-sp-500-etf-and-wait-20-years.asp
- https://www.fool.com/investing/2023/11/18/before-buy-vanguard-sp-500-etf-vbr-avuv-spsm/
- https://curvo.eu/article/build-portfolio-etf
- https://investor.vanguard.com/investment-products/etfs/profile/voo
- https://seekingalpha.com/article/4658331-schd-a-long-term-dividend-play-with-potential-to-generate-additional-income
- https://tradingqna.com/t/can-etf-become-zero/131741
- https://www.cnbc.com/2023/12/05/theres-now-a-juiced-up-way-to-get-4-times-the-return-of-the-sp-500-but-it-comes-with-many-risks.html
- https://www.investopedia.com/articles/exchangetradedfunds/11/advantages-disadvantages-etfs.asp
- https://www.fool.com/investing/2023/12/19/1-warren-buffett-etf-to-buy-and-hold-for-decades/
- https://www.tipranks.com/etf/voo/forecast
- https://en.wikipedia.org/wiki/Direxion
- https://www.investopedia.com/articles/investing/102915/why-are-etf-fees-lower-mutual-funds.asp
- https://www.nerdwallet.com/article/investing/leveraged-etf
- https://www.investopedia.com/articles/stocks/09/buying-stock-or-etf.asp
- https://www.investopedia.com/articles/etfs-mutual-funds/061416/biggest-etf-risks.asp
- https://www.bankrate.com/investing/stocks-vs-etfs/
- https://disb.dc.gov/page/single-stock-exchange-traded-funds-etf
- https://www.thestreet.com/etffocus/dividend-ideas/schd-2023-was-miserable-heres-why-2024-shaping-up-to-look-much-better
- https://investor.vanguard.com/investor-resources-education/taxes/how-mutual-funds-etfs-are-taxed
- https://www.aaii.com/etf/ticker/SCHD
- https://www.goldmansachs.com/intelligence/pages/the-60-40-portfolio-should-offer-a-better-risk-reward-in-2024.html
- https://www.investopedia.com/articles/mutualfund/07/etf_downside.asp
- https://www.investopedia.com/articles/investing/020916/etfs-can-be-safe-investments-if-used-correctly.asp
- https://guides.pm-research.com/content/iijetfind/2009/1/144
- https://www.businessinsider.com/how-warren-buffett-spends-money-net-worth
- https://www.investors.com/etfs-and-funds/etfs/does-it-matter-when-you-buy-or-sell-an-etf/
- https://finance.yahoo.com/news/top-10-stocks-2024-beyond-110000174.html
- https://www.fidelity.com/learning-center/investment-products/etf/drawbacks-of-etfs
- https://www.investopedia.com/articles/investing/121515/why-3x-etfs-are-riskier-you-think.asp
- https://www.sec.gov/investor/pubs/leveragedetfs-alert
- https://eightify.app/summary/quantum-computing/why-you-should-consider-investing-in-schd-in-your-retirement-account
- https://www.netnethunter.com/does-warren-buffett-drive-his-own-car
- https://www.nasdaq.com/articles/5-best-performing-single-stock-etfs-of-2023
- https://thecollegeinvestor.com/4414/leveraged-etfs-dont-match-market-performance/
- https://www.nasdaq.com/articles/if-you-invested-$1000-in-sp-global-10-years-ago-this-is-how-much-youd-have-now
- https://www.investors.com/research/berkshire-hathaway-stock-buy-now-warren-buffett-stock/
- https://www.trackinsight.com/en/education/how-many-etfs-should-you-own
- https://www.fidelity.com/learning-center/investment-products/etf/risks-with-etfs
- https://www.schwab.com/learn/story/beyond-4-rule-how-much-can-you-spend-retirement
- https://www.bankrate.com/investing/single-stock-etfs/
- https://www.nerdwallet.com/article/investing/how-to-invest-in-etf-exchange-traded-fund
- https://www.fool.com/investing/how-to-invest/famous-investors/warren-buffett-investments/stocks-owned/
- https://www.fool.com/investing/how-to-invest/stocks/how-to-invest-in-berkshire-hathaway-stock/
- https://www.statista.com/statistics/269928/assets-under-management-of-the-largest-etf-providers-in-the-us/
- https://www.quora.com/How-many-ETFs-are-too-many
- https://www.canstar.com.au/investor-hub/buy-sell-hold-etfs/
- https://www.barclays.co.uk/smart-investor/new-to-investing/reducing-unnecessary-risk/how-many-funds-should-you-hold-in-your-portfolio/
- https://time.com/personal-finance/article/how-many-stocks-should-i-own/
- https://www.investopedia.com/investing-in-index-funds-4771002
- https://www.fidelity.com/learning-center/investment-products/etf/tax-rules-for-losses-etfs
- https://money.usnews.com/investing/articles/best-etfs-to-buy
- https://www.etf.com/etf-education-center/etf-basics/best-performing-etfs-last-10-years
- https://www.pillsburylaw.com/images/content/3/2/v2/3201/C-S-Advisory-07-22-2010-II.pdf
- https://www.nasdaq.com/articles/should-schwab-u.s.-dividend-equity-etf-schd-be-on-your-investing-radar-11
- https://www.fool.com/investing/how-to-invest/index-funds/safest-index-funds/
- https://www.investopedia.com/terms/1/90-10-strategy.asp
- https://www.finra.org/rules-guidance/key-topics/etf/non-traditional-etf-faq
- https://www.justetf.com/en/stock-profiles/US0846707026
- https://www.etf.com/topics/leveraged
- https://www.foxbusiness.com/personal-finance/etfs-your-portfolio-experts-weigh-in-what-percentage-to-own
- https://www.fool.com/investing/2024/02/03/3-top-warren-buffett-stocks-to-buy-in-february/
- https://www.nasdaq.com/articles/schd-etf:-can-it-return-to-winning-ways-in-2024
- https://www.nasdaq.com/articles/the-biggest-holding-in-warren-buffetts-secret-portfolio-is-totally-average
- https://www.fidelity.com/learning-center/investment-products/etf/benefits-of-etfs
- https://money.usnews.com/money/retirement/articles/how-can-i-earn-100-200-or-500-per-month-in-guaranteed-income-in-retirement
- https://www.schwab.com/learn/story/3-ways-to-build-all-etf-portfolio
- https://www.etfcentral.com/etf-u/guides/how-many-etfs-should-i-own
- https://www.investopedia.com/articles/exchangetradedfunds/09/etf-out-of-business.asp
- https://www.etf.com/etf-education-center/etf-basics/why-do-leveraged-etfs-decay
- https://www.tipranks.com/etf/schd/forecast
- https://www.investopedia.com/ask/answers/021615/why-doesnt-berkshire-hathaway-pay-dividend.asp
- https://www.fool.com/terms/l/leveraged-etfs/
- https://smartasset.com/investing/what-is-a-leveraged-etf
- https://www.gurufocus.com/guru/warren%2Bbuffett/current-portfolio/portfolio?view=table
- https://etfdb.com/themes/leveraged-3x-etfs/
- https://finance.yahoo.com/news/17-stocks-warren-buffett-just-165340354.html
- https://seekingalpha.com/article/4661352-jepi-vs-schd-one-is-better
- https://www.investopedia.com/articles/investing/090115/7-best-etf-trading-strategies-beginners.asp
- https://www.investopedia.com/financial-edge/0113/7-easy-to-understand-etfs-to-replace-a-savings-account.aspx
- https://www.ally.com/stories/invest/what-are-inverse-etfs/
- https://www.fpmarkets.com/education/trading-tips/how-many-etfs-should-i-own-as-a-beginner-in-2023/
- https://www.investopedia.com/articles/01/071801.asp