Funds & Trackers
The urge to add one more fund
Portfolios grow by accretion, one reasonable-seeming addition at a time, until nobody can explain what the whole thing is for.
This looks at adding holdings to a portfolio from the practical end — what holds up once conditions stop being ideal.
What holds up in practice
- Each addition is easy to justify individually and hard to justify collectively.
- Adding is far easier than removing, especially in a taxable account.
- Complexity increases the number of decisions available to get wrong.
Accretion has no single culprit
Nobody sets out to hold eleven funds; each one arrived with a reason that was sensible at the time. One covered a gap, one was recommended, one came with an old employer scheme and one was bought during an enthusiasm. The result is a portfolio nobody designed and nobody can now summarise.
The question worth asking is not whether each holding was justified but whether the combination is.
Adding is an action, holding is not
The urge to improve a portfolio expresses itself as adding, because adding is something you can do. Removing feels like a loss even when it simplifies, and doing nothing feels like neglect. This asymmetry means portfolios ratchet upward in complexity over time unless something deliberately resets them.
The reset is normally a scheduled review with an explicit question about whether anything can go.
The gap that is not a gap
Additions are often justified by an exposure the portfolio "lacks", but a broad global fund already contains most sectors and regions in proportion. Adding a fund for one of them is a decision to hold more of it than the market does, which is an active bet.
The useful part is this: that may be a reasonable bet, but it should be described accurately rather than as filling a gap. The honest version is "I want more of this than the market gives me, because", and the because is the part worth writing down.
The costs of a longer list
Every additional holding is another thing to rebalance, another set of documents, another product whose charges can change. Overlapping funds also make it harder to see your real exposure, because the same companies appear in several places. The maintenance burden is what eventually causes people to abandon a plan or to stop looking altogether.
A portfolio you can hold in your head is one you will actually maintain.
Removing is harder than adding
In a taxable account, selling can trigger tax consequences that differ substantially by country, so simplification is not free. Where possible, redirecting new contributions rather than selling is a slower but cheaper way to consolidate. This asymmetry is a strong argument for restraint at the point of adding rather than tidying later.
Anything involving tax on disposals is worth checking with a regulated adviser where you live.
A rule before adding
Require yourself to write one sentence explaining what the new holding does that the existing ones do not, and what would make you sell it. If that sentence cannot be written, the addition is an expression of restlessness rather than a decision.
A second rule that helps is a cap on the number of holdings, forcing a removal for every addition. Constraints of this kind work because they intervene before the justification is constructed.
The takeaway
Before adding anything, write the sentence explaining what it does that you do not already own.
Pick the one that costs you least, and let the rest wait.
Questions readers ask
Is there a right number of holdings?
No universal number, but most long-horizon investors can express what they want with a small handful. If you cannot list them from memory, the list is probably too long.
What about a fund I inherited from an old employer scheme?
Those are the most common source of accretion. Consolidation rules, charges and tax treatment vary by country, so check locally before transferring anything.
