Investors wondering how many funds to hold may find around 10 well-selected funds sufficient for diversification, according to Dzmitry Lipski, head of funds research at investing platform Interactive Investor.
"If you prefer to build your own diversified portfolio, around 10 well selected funds can be more than sufficient to provide diversification across different asset classes, regions, market capitalisation and styles," Lipski said.
However, adding more funds does not necessarily increase diversification. Clare Francis, savings and investments director at Barclays Private Bank and Wealth Management, said: "Holding too many funds can create unnecessary complexity and may result in investors owning overlapping investments without realising it."
Lipski said that holding more than 20 funds is probably worth reviewing to check whether each one has a clear role and is genuinely adding something different. "Too many funds can make a portfolio unnecessarily complicated and harder to monitor and rebalance," he said.
On portfolio size, Lipski said it matters less than overall asset allocation and the role of each fund. "A large portfolio does not automatically need more funds," he said. He added that if a fund represents less than around 2% of a portfolio, it is worth asking whether it is large enough to make a meaningful difference to overall returns or risk.