Diversification Versus Simplification

[Lsbcal]

Some CAGR data for MSCI indexes + Vanguard index funds for period June 1992 to present:

SV 11.7%
SG 10.7%
MV 12.3%
MG 9.3%
LV 9.7%
LG 8.6%

No guarantees that this holds going forward.

[galeno]

My idea of a GREAT simple and diversified port = X% VT + Y% BND + Z% MMF.

[friar1610]

I cleaned up my portfolio a few years ago. Got rid of a small cap fund and an S&P 500 fund (both with VG) and put it all in VG's total stock index fund. I sorta enjoy keeping track of funds but my main objective was to make things simpler for my wife if she becomes my widow as she is not into this stuff at all. Also, as I get older and presumably driftier than I am now, I'll probably be better off with simplicity. So now we only have one domestic stock fund, one international stock, 2 bond funds (both indexes; one short-term and one medium-term), some CDs and I-Bonds.

[TromboneAl]

Quote:

Originally Posted by W2R I am not much of a slice-n-dicer, but some people prefer that. What appeals to you personally, Al?

I would actually prefer to have one single fund -- but that wouldn't meet my objectives.

I realized that some of this "complexity" that I don't like is related to doing the taxes. The two small cap funds I have are in the taxable account. I think I'll combine them into one small-cap fund in an IRA. That will reduce the 1099 info I receive by about half.

Quote:

Also, as I get older and presumably driftier than I am now, I'll probably be better off with simplicity.

Every time I have trouble getting my Moneydance total to match the total on the Vanguard site I think "I'm getting too old for this."

[foxfirev5]

Simplification is little tough since DW and I have 6 separate 401k, IRA and Roth accts. We each hold our own AA of 3-5 funds in each acct. At this point I'm going for the best balance of low cost funds with enough flexiblity to rebalance at will. Not too overwhelming yet.

[easysurfer]

Simplification makes the rebalancing process easier.

...An index fund here, and index fund there..then readjust the allocations when desired.

[TromboneAl]

Well, I moved a ton of money from stocks to bonds. Literally. Based on the weight of a modern silver dollar, I moved over a ton of money.

I got rid of one of the small cap funds, and totally converted one of my IRA total stock funds into the total bond fund, so I was able to reduce the number of funds by two.

It feels good to lock in those stock gains, and so now I say "Whee!"

[Lsbcal]

I looked up an ounce of silver and it seems to be going for about $19. Lets see, 16 x 2000 x $19 = $608,000. Or were they those rare Morgan silver dollars?

[NW-Bound]

I could (woulda, shoulda) lock in the gain on 12/31. As it is, I am going to lose 60 lbs of silver today. Not a ton of money, but it still hurts.

PS. Should have figured in gold. Then, it's only 1 lb of "lost" money.

[Lsbcal]

Quote:

Originally Posted by NW-Bound I could (woulda, shoulda) lock in the gain on 12/31. As it is, I am going to lose 60 lbs of silver today. Not a ton of money, but it still hurts. PS. Should have figured in gold. Then, it's only 1 lb of "lost" money.

But silver was nicely up today: SLV: Summary for iShares Silver Trust- Yahoo! Finance

I should have sold all those stupid stocks and bought silver.

[papadad111]

Got me thinking of the diversification question from a totally different angle....

Say you hold something like a boglehead simple portfolio of 4 funds at Vanguard. Simple and diversified from a market perspective.

What happens if Vanguard goes belly up? Is it better to hold ETF's that replicate a vanguard fund, or the vanguard fund itself from a diversification perspective

A friend lost a life savings by holding Lehman Brothers Treasury mini bonds ...about 5 years ago today he went from being multi-millionare to flat broke.

What SIPC or other protection is there in holding all assets in 1 brokerage account, eg. E-trade / Ameritrade / etc. ?

[M Paquette]

Quote:

Originally Posted by papadad111 What happens if Vanguard goes belly up? Is it better to hold ETF's that replicate a vanguard fund, or the vanguard fund itself from a diversification perspective A friend lost a life savings by holding Lehman Brothers Treasury mini bonds ...about 5 years ago today he went from being multi-millionare to flat broke.

That's why it can be important to know what you are actually investing in. The Vanguard funds or their ETF equivalent are simply containers for shares of stocks or bonds from a wide range of sources, which are held by a third party like Mellon Bank. Vanguard the company is actually owned by it's various funds, sort of an upside-down relationship compared to most mutual fund and ETF marketing companies. It's not particularly likely to go away.

If it were dissolved, though, all the shares of stock and all the bonds held by the funds are entrusted to a third party which could make investors whole. These get audited, so folks can't play funny games. That's where the SIPC coverage comes in, to restore funds in the event of some sort of internal fraud were some shares or bonds 'disappear'.

Those Lehman Brothers Minibonds, though... They were 'structured financial notes' issued in Hong Kong and Singapore backed by the full faith and credit of... Lehman Brothers. These instruments used underlying securities issued by Lehman Brothers wrapped around a collateral debt obligation (CDO) hidden beneath issued by Beryl Finance Limited, an entity created and controlled by Lehman Brothers, built on notes from Lehman US Dollar Liquidity Fund. And then it gets complicated....

The thing is, there's nothing there when Lehman Brothers is removed from the picture. You get a bunch of offsetting instruments, all now valued at nothing. There aren't any shares of real companies, or bonds representing real loans to other companies.