Short of having a stock picking crystal ball, most investors agree that diversification is a positive thing for our portfolios. We have old sayings like “don’t put all your eggs in one basket” to remind ourselves of the value of spreading risk around. We generally think that more is better when it comes to being diversified. But that depends on how you look at things.

Considering only the equity portion of our portfolio, we have some fantastic solutions in Canada with globally diversified all-equity ETFs. BMO has ZEQT, RBC iShares offers XEQT, & Vanguard Canada manages VEQT. Other Canadian institutions, including TD, Mackenzie, Fidelity, etc., all have their versions or something similar. Global X & others offer income-focused covered call & leveraged variants, with similar global diversity. BMO created their T Series ETFs for income seekers who prefer to avoid covered call & leverage strategies. Do your due diligence on whichever of these strategies might work best for you, but they are all globally diverse solutions. And that’s the real message here.

Any one of these funds provides something close to the maximum market-weighted diversity obtainable in the global public markets. It just doesn’t feel like that when you stick all your money into one ETF. If you’ve switched from stock picking to index investing, going from 50 stock holdings to just one ETF, then one lonely ticker symbol in a portfolio does not look like diversification, does it? But it is. For many investors, it may be the optimal way to get diversification. These funds are holding ten thousand companies, give or take, from all around the world. And here’s the kicker: buying any ETF that is less diversified than these ETFs actually reduces the balance of market-weighted diversification!

If you buy an additional financial ETF, for example, you are overweighting banks & financial institutions in your portfolio, relative to their respective market weights. All the holdings in any additional ETF are already contained in, & appropriately weighted in, the all-equity ETF solutions. Same if you buy a tech ETF. Or an ETF that would add weight to a region, such as Canada, the US, or international. If you disagree with the weightings in the all-equity ETFs, either by sector or geography, then by all means rebalance the weights by buying additional ETFs. But adding an extra ticker symbol to your holding by buying your favourite Canadian bank ETF does not increase the diversification offered by these all-equity funds. It just overweights stocks that were already correctly weighted in the single ETF solution. Despite how scary it might look, one might be enough. Rather than being a single basket, it’s more a basket of baskets. With about the right number of eggs in each of those baskets.

That said, there may be other elements of diversification to consider.

It may make sense to diversify with ETFs from more than one provider. The global stock exposure is approximately the same across most of these funds, but that’s not the diversification angle here. Who knows what might happen down the road, maybe a data center goes off line for our favourite fund provider. If some unimaginable thing happens, & we’re all in on that company’s ETF, we might be stuck redeeming those funds. Even if only temporarily. However unlikely that possibility, there might be a justification for holding very similar funds from other providers too. Splitting holdings across ZEQT & VEQT, for example, might be a reasonable thing to do.

Or, depending on the use for various accounts, it might be useful to hold similar funds, but with different strategies, across different accounts. Young investors, or retirees planning a legacy, might use a vanilla all-equity fund in the TFSA account, for example. While retired investors with an income bias might prefer to hold higher yielding variants that employ covered calls & leverage in a RRIF account. Still others might prefer the T Series type, like ZEQT-T, for income. Maybe even some of both. But you get the idea: it’s a mix & match thing. But this is for diversification by investing style across accounts with different goals. It’s not significantly diluting or changing the balance of the global diversification offered by any of the market-weighted solutions.

So by all means, go buy something different for fun, function, or fund manager diversification.
Or by design, if you feel modifying sector or geographic allocations will suit your needs better.
But be aware of what you’re doing if you’re only doing it because you just can’t bear to look at one or two ticker symbols in each account.

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Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.