Post by Admin on Aug 23, 2021 14:50:49 GMT -5
Bogle, the father of indexing, believed in 2-3 funds.
Buffett believes in the SP500..."Diversification is a protection against ignorance"
I believe in 5 (maybe 7) funds. I don't see any reason to own more than that. You can get all the diversification you need with 5-7 funds.
I also don't believe in over diversification, which IMO, is over 10 funds. More funds lead to more trading, and more trading means lower performance. Diversification also lead to several funds in the same/similar category, which usually means regressing to the mean.
Owning single stocks is another subject and a lot more complicated. Most should own mutual funds. In general, it's better to own stocks in a good category instead of a lagging one. Just because someone owns a good stock in a lagging category doesn't change this fact. This investor could find a great stock easier in a good category.
Suppose you are retired and want a low-risk/volatility portfolio...do you really need international small cap?
It also depends on your knowledge and experience too.
If you think that Europe or emerging market is a bad place to invest; “must” you invest there?
If you think that Treasury bonds might be bad for you; “must” you invest in them?
If you are a retiree and Vanguard Wellesley (which is a great choice for many retiree) satisfies your goals and risk tolerance; must you own several other fund categories?
If you want to diversify, what % you should own in each category is another interesting question.
Basically, it depends on who is the investor, what is her capability, what are the goals and risk tolerance and especially what is her style.
How to hold only 5 funds? This is what I have been doing over 20 years. Suppose my portfolio is all in cash right now, what 5 funds I must have? I play this all the time. In the last 5 years, I own only 2-3 funds.
I know, you are attached emotionally to your funds...why? I'm using the NBA analogy. My basketball team has 5 players, as a coach, I can play my best 5 guys. I want to go to the playoff every year, championship isn't a guarantee, but at least I'm at the top.
Buffett believes in the SP500..."Diversification is a protection against ignorance"
I believe in 5 (maybe 7) funds. I don't see any reason to own more than that. You can get all the diversification you need with 5-7 funds.
I also don't believe in over diversification, which IMO, is over 10 funds. More funds lead to more trading, and more trading means lower performance. Diversification also lead to several funds in the same/similar category, which usually means regressing to the mean.
Owning single stocks is another subject and a lot more complicated. Most should own mutual funds. In general, it's better to own stocks in a good category instead of a lagging one. Just because someone owns a good stock in a lagging category doesn't change this fact. This investor could find a great stock easier in a good category.
Suppose you are retired and want a low-risk/volatility portfolio...do you really need international small cap?
It also depends on your knowledge and experience too.
If you think that Europe or emerging market is a bad place to invest; “must” you invest there?
If you think that Treasury bonds might be bad for you; “must” you invest in them?
If you are a retiree and Vanguard Wellesley (which is a great choice for many retiree) satisfies your goals and risk tolerance; must you own several other fund categories?
If you want to diversify, what % you should own in each category is another interesting question.
Basically, it depends on who is the investor, what is her capability, what are the goals and risk tolerance and especially what is her style.
How to hold only 5 funds? This is what I have been doing over 20 years. Suppose my portfolio is all in cash right now, what 5 funds I must have? I play this all the time. In the last 5 years, I own only 2-3 funds.
I know, you are attached emotionally to your funds...why? I'm using the NBA analogy. My basketball team has 5 players, as a coach, I can play my best 5 guys. I want to go to the playoff every year, championship isn't a guarantee, but at least I'm at the top.