NOTE: If a random reader of my post is a novice investor, disregard my post until later.Correct. In fact, anything other than three broad index funds would actually be less diversified. If you have a total US stock index fund, a total international stock index fund, and a total bond fund, you own the entire world according to it's market capitalization. You can't get more diversified than that. Doing anything else involves tilting away from broad diversification.I see the value and validity in three broad index funds being more than diversified enough.
The main reason advisors put clients into a dozen or more funds, which they often churn, is to make investing appear too complicated for anyone to do on their own. They don't want you to realize that investing is really quite simple. Over an investing lifetime for their clients, AUM advisors and active managers typically make millionaires out of multimillionaires.
It sounds like you've got a good handle on how to construct a simple index fund portfolio. Trust yourself. By all means, however, pay for hourly advice when and if you have specific planning related questions that require some outside expertise or reassurance, but do the implementations yourself using a simple three fund equivalent approach.
There are a few minor edge assets such as junk bonds, convertible bonds, preferred stocks, TIPS, cash equivalents, gold, etc. These range from easy and cheap to hard and expensive to implement.
However, I think most investors would have a hard time knowing how and when to include them into a portfolio; therefore, ignoring them is probably the smarter choice than running for an expensive advisor.
Personally, I like the diversity. Thankfully, junk bonds now are one of the easy assets to include (one can have it for 0.05%). Convertible bonds are probably never going to be a cheap option for retail investors period (but there are semi-cheap ETFs, I think 0.20% is the cheapest), and their inclusion is tricky to determine as their nature is dynamic. Preferred stocks (which are 0.23%-0.25% to start in an ETF) are more available to retail investors, but they are not easy to understand either; an investor in this space should be well-informed and manually construct a portfolio rather than use an ETF.
But, I would not pay much of a premium for the above; nor should they feel obliged to buy.
Statistics: Posted by secondopinion — Mon Feb 24, 2025 1:00 am — Replies 7 — Views 374