How Many ETFs Should You Hold? The Australian Investor's Guide (2026)

The most common mistake Australian ETF investors make is holding too many ETFs in the belief that more funds equal more diversification. In practice, the marginal diversification benefit of adding a third, fourth, or fifth ETF is typically zero — because most ETFs already contain thousands of underlying securities, and adding another ETF often just duplicates existing exposure.

Quick answer: 1 ETF (DHHF or VDHG) is sufficient for most Australians. 2 ETFs (e.g. VAS + VGS or VAS + BGBL) gives you control over geographic allocation at lower fees. 3 ETFs is the reasonable maximum for a retail investor. Beyond 3, you are adding complexity and brokerage cost without meaningful diversification benefit.

What ETFs Already Give You

A single broad-market ETF like DHHF holds approximately 8,000 companies across Australia, the US, Europe, Japan, emerging markets, and more. VGS holds approximately 1,500 companies across 22 developed markets. IVV holds 500 of the largest US companies.

Each of these single ETFs is already more diversified than the entire portfolio of most professional investors 30 years ago. Adding a fourth ETF to a DHHF portfolio does not meaningfully improve diversification — it adds administrative complexity.

The Overlap Problem

Many investors build portfolios that look diversified but are actually heavily concentrated in the same positions through different fund wrappers.

Example of an over-complex portfolio with massive overlap:

DHHF (holds A200 + VTI + global developed + emerging)
VAS (Australian shares — already inside DHHF via A200)
IVV (US S&P 500 — already inside DHHF via VTI)
VGS (global developed — already inside DHHF via SPDW)
NDQ (NASDAQ 100 — significant overlap with IVV and the US portion of DHHF)

This portfolio looks like 5 ETFs covering everything. In reality it is massively overweight US tech (held in DHHF + IVV + VGS + NDQ) and Australian shares (held in DHHF + VAS). The investor is paying brokerage on 5 transactions per month when a single DHHF purchase would have been equivalent — and cleaner.

The 1, 2, and 3 ETF Frameworks

1 ETF: Maximum Simplicity

Hold DHHF or VDHG. Done. One purchase per month, one annual tax statement, one ETF to monitor.

DHHF (100% growth, 0.19% MER) — for investors with a long horizon and high risk tolerance VDHG (90/10 growth/defensive, 0.27% MER) — for investors who want some bond buffer

Advantages: No rebalancing required (the ETF rebalances internally), minimum brokerage, minimum tax complexity, minimum cognitive load.

Disadvantages: Slightly higher MER than a DIY equivalent, no control over geographic allocation, less flexibility to tilt toward specific regions or factors.

Best for: Beginning investors, investors who want to set-and-forget, investors contributing smaller amounts where multiple brokerage costs eat into returns.

2 ETFs: Control Without Complexity

The most common portfolio for experienced Australian index investors: an Australian shares ETF + an international shares ETF.

Common combinations:

VAS (Australian, 0.07%) + VGS (Global developed, 0.18%) — blended fee ~0.13%
A200 (Australian, 0.07%) + BGBL (Global developed, 0.08%) — blended fee ~0.08%
VAS + IVV (if you want US-only international exposure) — blended fee ~0.06%

Typical allocation: 30% Australian / 70% global (mirroring approximately Australia's share of global market cap)

Advantages: Lower blended MER than DHHF/VDHG (~0.08–0.13% vs 0.19–0.27%), full control over geographic allocation, ability to tilt Australian allocation for franking credit maximisation.

Disadvantages: Requires periodic rebalancing (once per year is sufficient), two brokerage transactions per contribution, two annual tax statements.

Best for: Investors with $50,000+ in the portfolio where the fee saving justifies two-ETF complexity; investors who want to choose their own geographic allocation.

3 ETFs: Maximum DIY Control

Adding a third fund — typically for emerging markets (VGE at 0.48%), bonds (VAF at 0.20%), or small-cap (VSO at 0.30%) — gives more precise control over asset allocation.

Example three-ETF portfolio:

VAS (30% — Australian shares)
BGBL (60% — global developed markets)
VGE (10% — emerging markets)

This approximates global market cap weighting across three funds.

Advantages: Most precise control over asset allocation, lowest possible blended MER for comprehensive coverage.

Disadvantages: Requires disciplined rebalancing, three annual tax statements, three brokerage transactions per contribution.

Best for: Larger portfolios ($200,000+) where fee optimisation justifies complexity, investors with strong preferences about emerging markets or factor exposure.

Beyond 3 ETFs: Usually a Mistake

Adding a fourth ETF almost always creates overlap rather than diversification. The only reasonable fourth addition is:

A high-interest cash ETF (AAA, BILL) as a cash management tool
A gold ETF (PMGOLD) if you specifically want a gold allocation as a hedge

Beyond these, additional ETFs typically add brokerage costs and complexity without improving your risk-adjusted return.

Rebalancing: The Hidden Cost of Multiple ETFs

A one-ETF portfolio (DHHF/VDHG) never needs rebalancing — the fund does it internally.

A two or three-ETF portfolio drifts over time. If Australian shares outperform global shares, your VAS weighting grows above target. You must either:

Sell overweight ETFs and buy underweight (triggers CGT)
Direct new contributions to the underweight ETF (no CGT, preferred method)

For most investors, directing contributions to the underweight ETF is sufficient. Annual rebalancing using new contributions avoids CGT entirely and keeps the portfolio approximately on target.

Frequently Asked Questions

How many ETFs should I hold in Australia?

1–3 ETFs is the appropriate range for most Australian investors. One diversified ETF (DHHF or VDHG) is sufficient for beginners or investors wanting simplicity. Two ETFs (Australian + international) is the most common approach for experienced investors who want lower fees and geographic control. Three ETFs adds emerging markets or bonds. Beyond three, the marginal benefit is zero for most investors.

Is one ETF enough for diversification in Australia?

Yes. A single broad-market ETF like DHHF holds approximately 8,000 companies across Australia, the US, Europe, Japan, and emerging markets. This is more diversification than most investors need. One ETF is not a compromise — it is a genuinely excellent portfolio for most Australians.

What is the overlap problem with ETFs?

Overlap occurs when multiple ETFs hold the same underlying securities. DHHF already holds the Australian and global shares that VAS, VGS, and IVV provide. Adding these separately creates doubled or tripled exposure to the same positions without improving diversification. Before adding a new ETF, check its top holdings against your existing ETFs — if they are the same companies, the new ETF adds nothing.

Do I need to rebalance my ETF portfolio?

A single all-in-one ETF (DHHF/VDHG) rebalances automatically — no action required. A multi-ETF portfolio drifts over time and needs periodic rebalancing. The simplest approach is to direct new contributions to whichever ETF is underweight relative to your target allocation, avoiding the need to sell (which triggers CGT).

General information only. Not financial advice.