38 And Counting

A few years ago the "simple living" theme came into vogue.  Numerous magazines and websites were spawned ostensibly to help people stamp out complexity, diversions, and general clutter.  I looked around my garage and basement and was instantly sympathetic to the idea, but never really did much about it.  The Fiat Fantasy portfolio is up to 38 holdings and management is starting to be burdensome.  In the heat of the moment, we got in over our head.  Time to simplify. 

Many say that a portfolio of 15 to 20 holdings is optimum.  Other writers advocate a very small number of holdings-- one, two, or three.  As I have both the time and interest, I think I can handle 20 + investments, but not 38.  After all, beyond our basic premise of hard assets investments, there's no "fundamental" analysis going on.  We leave that to the CFAs and other experts and just try to hitch a ride on something consistent with our theme that's going up.  Over time then, one of our objectives is to reduce the number of investments.  A good place to start is wherever two or more holdings are mostly redundant.

The global real estate holdings, WPS and RWX, are a good case in point.  There's simply not much difference between the two.  WPS has a slightly greater exposure to Asia.  RWX and WPS have an expense ratio of .59 and .48 respectively.  They share two of their top five holdings in common.  The biggest difference is volume-- WPS is thinly traded compared with RWX.  Here's a three year chart of RWX and WPS.  You might have trouble noticing there really are two lines on the graph.

My preference is RWX solely because of the greater liquidity.  By the time we have to make a decision, there may be enough information available about Vanguard's new global ex US REIT, VNQI, to make it the keeper. 

Just to wrap up, portfolio simplification is needed and we'll make it happen within the context of normal trading.  Scaling back the number of investments will take time as simplification is not the prima facia reason for a trade.