At what point does owning SPY + QQQ + a growth ETF stop being diversification and start being the same bet in different wrappers?

That’s why you compare ETFs to see what in them. You’re exactly correct in that many overlap. A simple single etf covering a sector works just fine.

Yeah that’s kinda where I’m landing too. Curious though, when you compare 2 ETFs do you mostly look at holdings overlap/sector weights or do you also care about how correlated they actually are during downturns? That second part is what got me thinking about this more

Every equity is correlated in major downturns. Value stocks underperformed growth stocks during the great financial crisis. You're overthinking this. Just make sure a single company or single sector isn't over represented in your portfolio. The most important thing is not to sell and to keep buying as usual.

Yeah that makes sense. When you say just make sure no company/sector is overrepresented what do you actually use to check that across multiple ETFs? Just looking through the fund holdings manually or is there a tool/site you usually use?

Just look at the top 10 holdings. Your portfolio is 60+% tech, 10% nvidia, apple/microsoft/amazon/google/meta/tesla are each 4-10%. I'm not saying thats a bad thing, but its definitely something you should be aware of.

Just use an online tool like this. https://www.etfrc.com/funds/overlap.php If you don't want to deal with all that, VTI is the entire US stock market. A single ETF that covers it all. Then you can add bond; reits; gold etfs etc on top of this for a complete portfolio.

Unless you are managing 9 figures. Your ability to look through the weightings of two very similar ETFs is less valuable than taking an extra Gatorade with you when you give blood.

Claude slop.

ChatGPT crying in the corner 😭

Yes that's way too articulate for a very naive question 

The comments are slop too. You can tell it's AI by the common pattern of starting with a praise and speaking in a narrative tone. Then ending with questions.

The moment you buy 2 ETFs that hold the same companies it stops being diversification. I think the thought that “on paper it looks diversified because they’re 3 different ETFs” is fundamentally flawed logic. I’d say at face value that’s how it appears, but if you looked at the paper you’d see it’s the same companies over and over. Someone doing this in the name of diversification probably doesn’t really know what they are doing at all. Buying QQQ along with SPY is usually an attempt to concentrate, not diversify. Someone who wants “broad” market exposure but wants to lean a little more heavily into tech than the broad market ETF offers might do this. In the current environment it honestly isn’t even doing a great job of achieving that tho. SPY is already like 40% tech, and that’s just the companies officially recognized as tech. At the end of the day, It is important to know what you are investing in and why, and someone who is buying different ETFs that hold the same companies likely does not know either of those things, unless they are trying to get more exposure to something that their current holdings do not provide. Which, like I said, is someone looking for more concentration, not diversification.

Yep, this is basically the distinction I was trying to get at in the post. I probably worded the “looks diversified on paper” part badly, what I meant was more that someone can *\*feel\** diversified just because they see 3 different ETF tickers without really checking what’s underneath. The part I’m still trying to figure out is how people measure whether that extra tilt is actually worth it. Do you mostly just look at holdings/sector overlap, or would you also compare stuff like correlation, drawdowns and recovery during bad markets?

Exact allocation percentages, or tilts, vary from person to person depending on a variety of factors including risk appetite. There is no correct, or one size fits all approach.

I've always wondered if there's a tool that you can input a list of mutual funds/etfs/etc, and it would spit out a list of the actual companies you're invested in. But now I'm sure people will just say "use AI", and I'd rather rip my own scrotum off with a pair of vice-grips.

lol fair 😂 That’s actually pretty close to what I was getting at. Like you throw in SPY + QQQ + VUG and instead of seeing 3 ETF names, it shows you the combined underlying companies + your actual exposure to each one I’d probably want more than just the company list though. Like combined weight in NVDA/MSFT/AAPL, sector concentration, overlap %, maybe how those exposures behaved in drawdowns Would that be the kind of thing you mean, or are you mainly looking for a simple “here’s everything you effectively own” breakdown?

That's pretty much on the nose for what I was thinking. Take your portfolio, and then give you a full list of what you're invested in and how much. Maybe even something that could tell you how to simplify your portfolio but maintain your current exposure(You have these sixteen ETFs, but you could get this same exposure with these two). Or something where you could say "I want this, but without these companies" and get other funds that cover most/all of your other exposure minus what you're trying to divest from.

Yeah exactly, the simplification part is actually what makes this interesting to me. Not just “these ETFs overlap”, but “you could get basically the same exposure with fewer holdings.” The “exclude these companies but keep the rest roughly the same” idea is pretty cool too. I imagine that gets complicated fast tho lol

Any reputable stock trading website will tell you what's in it. Who tf buys an ETF without knowing what's in it?

Knowing what's in it isn't anywhere near the same as having a tool that will do the work for you to compare multiple ETFs, calculate total exposure, tell you what other funds might better represent that exposure, and what funds would have similar exposure minus some companies maybe you no longer have interest in. Not everyone wants to be constantly doing research for their portfolio.

Why do you need a tool to do it for you? Just go to any damn site and type in your ETF. It will show the top holdings and their percentages. It will be REALLY obvious if they are similar.

And if all I cared about was comparing the top holdings across a couple ETFs, you'd be absolutely right.

If you’re buying broad market etfs like VT/VTI you have to have a reason to have multiple holdings as they are already strongly diversified alone. There are relevant cases to own multiple funds for diversification. Did you buy VOO/SPY young and want to have a more diversified holding like VT without selling and incurring taxes. Then you can buy VXUS and VXF. Those hold international and domestic non SPY funds respectively. They have no overlap with SPY, so increase diversification. You will have to manually rebalance. Even in that case is optimal diversity worth the extra effort to you.

Yeah that makes sense. I like the “each ETF should have a job” way of looking at it. The part I’m curious about is how you decide if that extra diversification is actually meaningful enough to justify the extra complexity. Like with SPY + VXUS/VXF, would you mainly look at the lack of holdings overlap or would you also want to see how much it actually changes the portfolio during different market conditions?

SPY + VXUS + VXF is effectively VT and if you were buying fresh and wanted that diversification you should just buy VT. It sounds like you don’t have a specific goal in mind and in that case just buy VT. If you did have a specific goal then you can make bespoke investment decisions. For example if you work for Nvidia and you have a lot of tied up equity, you no longer want to buy SPY as that is over-concentration. Maybe you direct index SPY with your employ excluded. Now that you are effectively cover the diversity of SPY through your employer stock and direct indexing you add VXUS and VXF to complete broad market international diversification. Young people rarely need multiple ETFs for exposure though. You have to have a strong argument not to just buy VT and it’s not something someone else can tell you. VT is the average of all investors. How are you different from the average investor and then make a plan accordingly. It’s completely ok if the answer is you aren’t that different from the average and can just buy the simplest diversified ETF.

SPMO is better than SPY

Immediately

There is no need to diversify SPY. Adding those ETFs makes you less diversified, not more.

When I started investing in 2019, I had no idea what I was doing so I was buying small (like a few hundred $) of VTI, VOO, QQQ, VUG, VT thinking I was diversifying. But it's too late for me to rebalance to a more simpler portfolio with just VTI, VXUS, and VB/VBR since I have sizeable gains. I'm Mag 7 heavy especially since I own META, MSFT, and some APPL too.

I think there’s a lot of overlap there and so long as people are aware of it it’s fine I also think Reddit hyper evaluates people’s portfolios as if perfect diversification is the goal in and of itself, and that people who are otherwise automating DCA into good broad funds are committing a grave error. Redundant? Sure. Terrible? No

You need a correlation of less than +0.6 to +0.7 to begin to have marginally statistically significant diversification. Pretty much any market cap weight US equity fund will have a correlation much higher than +0.7. Over 3 month to 1 year return horizon, most international stock funds will still be higher than +0.7. However, over longer horizons (7 year to 10 year) international stocks can have 0 to slightly negative correlation to US equity.

People who think buying another ETF is diversification must be really new to investing and have no idea what they are doing. Anyone with basic understanding of what an ETF is will know diversification depends on what is held by the ETF. People who are getting into investing should first understand what kind of diversification they want before looking up what ETFs there are. For example 80% US, 20% Rest of the world. Or 60% US, 20% other developed markets, 20% emerging markets. Or 50% tech sector, 30% energy sector, 20% consumer staples. First thought process should be what part of the stock market do I need in my diversification and then look for which ETFs hold that.

The moment you add two broad ETFs you're just dilluting them and there is probably a single wrappered ETF that doesn't what you're trying to do anyways.

Now. Today. As we speak

Having 3 different funds that all have correlations of 1 provides negligible diversification benefit over having all the money in just 1 of those funds. If you want more diversification, you have to add things with a correlation less than 1. Which funds you pick DO matter.

Everyone has different standards and expectations for diversification. It is good to know the individual stock holdings in a portfolio no matter the etfs. https://etfdb.com/tool/portfolio-analyzer…

I would like to look at the underlying holdings before making it three different trades with three ETFs. SPY covers huge markets, but QQQ and a growth ETF that will add ton of same companies on top of that. I would check the overlap and sector weights first and then compare their behavior during various drawdowns. If they are all hit for the same reason they'll offer a more ornamental diversification strategy than actual diversification. There is nothing wrong with redundant holdings in certain situations to "tilt towards growth" you just have to be aware that you are do so.

It becomes concentration. Nothing else to it, add up the weighted percents by holdings/ETF

I would actually be willing to buy an ETF that tracks just the 10 most overlapped stocks...

As long as you’re aware the overlap. There’s scenarios where an investor may want more concentration in a sector or specific theme like momentum but does not want to buy specific stocks. Just don’t be silly about it like have 3 different SP500 ETFs lol.

At this point i'm concluding that there are two groups in this sub, those who hate AI and those who fall for AI slop every single time.

About a year or two ago. 

I’ve never felt like those things were diversified at all. I’m reading your question in the title and I’m reading your question in the body of the post and they don’t seem to be the same question. The title is easy to answer. You just look at the holdings of whatever symbols you’re trying to own, and then you can literally have AI spit the names into a spreadsheet and tell you the percentage overlap. And the three things that you listed, which I assume your growth ETF is probably gonna be concentrated in technology names, it means that the three things you’ve picked are heavily correlated and they overlap. But it was never diversification, anybody who looked inside knew that all three of them hold Apple and they all hold Amazon and they all hold Google (for example, I didn’t actually check what’s in QQQ because I don’t own it, but I know it’s tech so I’m assuming that it’s got those three in it) But the body of your post seems to come to this realization. It’s like you thought about it long enough to realize that ETFs are just wrappers for actual companies. So then you say in the post, you wanna know how other people approach the concentration of risk. And I guess it’s the same answer, we look inside the ETF and we read the perspective and we follow the quarterly results in communications that they publish and we throw that stuff into rows and columns and we do some pretty basic arithmetic in order to see what percentage our actual dollars are exposed to each company or to each sector. There’s really no mystery at all. I kind of feel like my message might be coming across a little rude and that’s not my intention. I guess I really am having a hard time processing where this post is coming from. If there are people reading this and you own QQQ and you didn’t realize before this post that QQQ is just a label and inside that label are companies such as Apple and Amazon and Google, then I’m afraid that you’re investing in things you don’t understand and that is never a good idea.

Even Berkshire is moving into tech now

id look at overlap by weight rather than by count. two funds can share a smallish share of their names and still share most of their weight, since the top handful carries most of the movement the name count version will make it look more diversified than it is

you are overthinking this. of course holding spy, qqq, and vug is just the "same bet in different wrappers". just buy vt (or vti+vxus) and chill. maximum diversification + sensible investing.

It depends on where you start. Start with SPY? VUG is just weighting towards growth, and QQQ would mostly weight towards tech, albeit with 15 or so extra companies. So overall, decreasing diversification. Start with QQQ? Adding SPY adds quite a bit of diversification.

For me VOO or SPY is already enough, as you said a lot of QQQ or any other popular overlaps so there is no point. I think about geographical diversification in what the businesses actually do. For VOO, most companies operate around the world so US concentration wouldn’t be that big a problem. But if you are still concerned I think a small portion of country or region specific ETFs to go with VOO would be good. Lets say Alibaba from China becomes the biggest company in the world in 20 years somehow, you would still capture that in a China or Asian ETF while your American companies also do their jobs.