Are You Over Diversified?
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 30 October 2019
⏱️ 30 minutes
🧾️ Download transcript
Summary
Is it possible to be too diversified and how can you tell? Why Warren Buffet thinks diversification is protection against ignorance.
Topics covered include:
- The skills you need to be able to select individual stocks.
- How have active managers outperformed relative to passive indexing products.
- How much diversification is too much and a test to determine if one is over diversified.
- What is factor investing and which factors have worked over the past 200 years.
Thanks to LinkedIn and Policygenius for sponsoring the episode.
For show notes and more information on this episode click here.
- [2:22] Exploring the concept of over-diversification
- [5:25] Should you pay for an investment advisor to select individual stocks?
- [8:05] An individual investor should choose index funds
- [11:10] Determining how much diversification is enough?
- [13:37] Weighing the cost against the benefits
- [16:10] When being over diversified is possible
- [17:05] Analyzing the listener question regarding over-diversification
- [20:20] A Fascinating study analyzing 200 years of factors
- [25:08] Layer on additional value factor
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. |
| 0:11.0 | I'm your host David Stein today's episode 275. It's titled, Are You |
| 0:16.4 | Over-Diversified? I recently received an email from a listener who wrote. |
| 0:22.7 | First I want to say that I have been listening to your podcast for about six or seven months |
| 0:26.4 | now. I'd like to thank you for providing a large breadth of knowledge on topics that I find |
| 0:31.1 | useful. Your podcast is one of the few that I share frequently |
| 0:35.2 | with friends and family. Thank you. Anyway, my questions are, first, should I consider |
| 0:41.0 | using a financial advisor at the cost of 1.5% of funds under management? |
| 0:47.6 | I feel as if I've done fine managing my wife's retirement money so far. |
| 0:52.1 | Together we have saved $540,000 at the age of 40. |
| 0:57.1 | Our retirement money is invested in low cost, passively managed Vanguard Vanguard Funds. |
| 1:06.7 | Approximately 50% in the Vanguard Total Stock Market Index Fund. |
| 1:10.1 | 25% in the Vanguard Total Bond Market Index Fund. |
| 1:17.0 | 15% in the Vanguard Total International Stock Fund and 10% in the Vanguard Total International Stock Fund, and 10% in the Vanguard Real Estate Index Fund. After speaking with the advisor whose firm does its own research and invests their customers |
| 1:22.0 | in specific holdings held at a third-party brokerage, he |
| 1:25.4 | analyzed my current portfolio and mentioned that I'm over-diversified. |
| 1:30.6 | 10,963 stockholdings, among other selling points. |
| 1:36.4 | Second, alternatively, is it worth considering switching to actively managed funds at a slightly |
| 1:42.2 | higher cost, where I'd feel like I'm maintaining a little more |
| 1:46.1 | control but I could avoid this stated over diversification. |
| 1:51.9 | The portfolio below is what I'm considering and mimics what I was |
| 1:55.1 | already looking to phasing into as the market eventually correct, awaiting 5% |
... |
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