The One Fund Portfolio
/You might have heard of the three fund portfolio, or even the two fund portfolio. But the one fund portfolio? In what circumstances can it make sense to hold all of your investments in one fund?
Remember, as a UK-based investor, I based each of my investment decisions on my own research. These are not investment recommendations. Before making any decisions, you must do your own research and/or seek your own independent financial advice. Click here for the full disclaimer.
My One Fund Portfolio
Right off the bat, let’s take a look at my own one fund portfolio (below).
The data above is correct as of January 31st 2019. The Vanguard FTSE Global All Cap Index Fund hold 6023 stocks in more than 11 sectors, across 43 countries.
My one fund portfolio is made up of the Vanguard FTSE Global All Cap Index Fund (Accumulation). I invest through a Stocks and Shares ISA (S&S ISA) held directly through Vanguard UK (this article is not sponsored by Vanguard, I simply trust their reputation and experience).
The idea of a one fund investment portfolio is controversial to say the least. But in some circumstances, a one fund portfolio can make sense.
Asset Diversification Matters. Fund Diversification Does Not.
Diversification is the pillar of long term investing. But some confuse asset diversification with fund diversification. On the contrary, a larger quantity of funds might trick an investor into thinking they’re diversified, when they’re not.
What do I mean by this? To tackle the first point, when you break down your portfolio, it’s important to make sure you’re diversifying your actual assets. If you achieve that level of diversification with one fund, there is no need for a second, third, fourth (and on it goes).
To tackle the latter point, a larger quantity of funds can make an investor believe they’re diversified when they’re not.
Fund overlap exists. It is common, for example, to find the same blue chip stocks (well established, high value companies) across a number of funds. Holding two funds, which hold the same companies within them, can therefore hinder, not help, reach your goal of diversification.
A truly diversified, one-fund portfolio, may be all that you need.
Management Can't Be Simpler
DIY investing has never been easier, especially with online investment platforms. A one fund portfolio, makes it simpler still.
I invest on the same day each and every month and it takes a grand total of around 10 minutes. If I have a set amount to invest, with one fund, everything is just deposited and invested. No calculations necessary.
If I had to break down that set amount into multiple funds, I would need to decide what percentage of that sum goes to each fund.
The one fund portfolio makes investing almost as simple as depositing money into a bank account.
Your Investment Beliefs Matter
I am only 24 years old and, if you’re a regular reader of this blog, you’ll know that I follow the low cost, long term, market tracking approach to investing. The very strategy espoused by Warren Buffet and brought to market by the late Jack Bogle.
I will not go into all of the advantages of market index funds here (as I have elsewhere). But the index fund approach helps when it comes to the implementation of a one fund portfolio.
You can be truly diversified with just one fund. Investing in thousands of companies, of varying size, in different sectors, across the globe.
Example One Fund Portfolios
It may not make sense to keep your portfolio one-fund forever. It all depends on asset allocation. But in some circumstances, it might make sense to do so. Here are some examples of one fund portfolios which may be appropriate in certain circumstances. I have only used Vanguard UK funds in the examples below.
FTSE Global All-Cap Index Fund (Acc.)
Appropriate for the young investor who wants a true, global, market cap-weighted portfolio (no home bias).
This fund is 100% equities, meaning increased annual volatility is expected.
Great for the growth stage of investing, this ‘accumulating’ (acc.) fund reinvests dividends.
Not so great for retirement/wealth preservation. An additional bond/fixed income fund is required when retirement approaches.
LifeStrategy 100%
LifeStrategy 40%
Similar to the Global All-Cap Index Fund but, in reality, is a fund of funds.
Vanguard has a number of index funds on offer. LifeStrategy puts a number of those funds in one basket and you buy the basket.
Still 100% equity, LifeStrategy 100% is appropriate for a young, aggressive investor, but Vanguard decides your allocation to each market index fund (eg. UK All Share - 19%, Emerging Markets 8%).
LifeStrategy 40% works on the same principal but might be more appropriate for an individual in early retirement.
The majority of this fund is in bond index funds. These include pound sterling-hedged foreign bond funds, inflation-linked gilt index funds and UK government bond index funds.
Again, you might need to alter your portfolio as you age, as the equity/bond allocations (eg. 40%/60% are fixed)
Target Retirement 2040
Target Retirement 2025
Unlike the other one-fund portfolios above, you may never need to alter your portfolio if you hold a ‘Target Retirement’ fund.
These funds are similar to Vanguard’s LifeStrategy range but instead of a fixed equity/bond allocation, the allocations shift over time, as you age and get closer to retirement.
The 2040 fund, appropriate for an investor who is looking to retire around 2040, would start out with a greater equities allocation.
But, as the investor aged, they’d automatically become owners of more bond index funds. If you’re holding the Target Retirement 2025 fund, you’d already own more bonds, since you’re not too far from retirement.
The idea of this one-fund portfolio is that everything’s all done for you. A truly set-and-forget approach.
Of course, this might not be appropriate if you disagree with Vanguard’s approach to asset allocation as you age.
Other Things To Think About
Tax Efficiency
Allocation isn’t everything. Tax-efficiency is important too. Whether your investments are held in a retirement account or a Stocks and Shares ISA, invest tax efficiently.
Not All One-Fund Portfolios Are Created Equal
The one-fund portfolios above are not speculative, undiversified products. They’re diversified (across thousands of companies in different sectors across the globe) and designed to be low cost, long term market-tracking investments.
Investing in an actively managed fund that’s advertised as “market beating” is likely a lot riskier. See 2019’s Woodford Fund issues (the best piece of indirect advertisement for passive investment in recent history).
Recommended Resources
No matter what approach you take, it’s important to keep on top of your finances. If you’re looking for resources to better your own personal finances, here are some of my recommendations:
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Savings/Investment Spreadsheet Downloadable - 10% of profits go to a charitable cause.
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Rich Dad, Poor Dad by Robert Kiyosaki
The Little Book of Common Sense Investing by John C Bogle
The Intelligent Investor by Benjamin Graham
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For an updated look at my portfolio of savings and investments, see this page on my blog.
