Let's say we have a faithful Boglehead who wants to keep his/her investments very simple and low cost. They select 50%/50% stocks/bonds for their asset allocation, all in a taxable account, and true to the spirit of simplicity they have chosen 2 funds: A low cost S&P 500 index fund, and a bond fund of the sort often recommended on this forum. This mix has served them well enough over the years, and they show their gratitude by making an enormous batch of chocolate chip cookies, enough for every member on this forum. While working out the logistics of delivering all those cookies, they realize an important fact: Their S&P fund has become too concentrated in tech/AI/newfangledness for their comfort.
They would like to mitigate this perceived problem. But how to go about it? They want to add at most one other investment, as simplicity is paramount to their investment philosophy. Let's ignore any tax consequences of rebalancing for the moment.
Should they sell some S&P and rebalance a portion into, oh, let's say Berkshire Hathaway? Of course that exposes them to idiosyncratic risk of a single stock, so is far from perfect. Or, they could probably find a fund that is deliberately light on tech, so let's conjure up a fund called LDBY, the Luddite Buggy Whip Yesterday Fund. Of course, that is not likely to have the low expense of an index fund, so also not ideal.
What should our intrepid idealist do?
They would like to mitigate this perceived problem. But how to go about it? They want to add at most one other investment, as simplicity is paramount to their investment philosophy. Let's ignore any tax consequences of rebalancing for the moment.
Should they sell some S&P and rebalance a portion into, oh, let's say Berkshire Hathaway? Of course that exposes them to idiosyncratic risk of a single stock, so is far from perfect. Or, they could probably find a fund that is deliberately light on tech, so let's conjure up a fund called LDBY, the Luddite Buggy Whip Yesterday Fund. Of course, that is not likely to have the low expense of an index fund, so also not ideal.
What should our intrepid idealist do?
Statistics: Posted by Teague — Sat Aug 24, 2024 10:41 pm — Replies 35 — Views 2224