Geoff Considine

Asset Allocation and the All ETF Portfolio

Good questions. First, remember that this is all about the statistics. You don't want to bet too heavily that you can pick the best performers from a population--not my point at all. I am guessing that you fall more on the John Bogle side of the divide rather than the Warren Buffett side! There is a philosophical issue here. I prefer to hold more individual stocks in my portfolio but I understand that many investors prefer to minimize the company specific risk which is related to the issue you raise. Your point is that it is better to buy 20 stocks in an index because you would have low odds of picking out the best of those stocks and investing in just these. On the other hand, buying everything in an index means that you are damping out the potential benefit of the string companies. There is also the long-term impact of total fees.

There is always some 'selection risk' in picking funds or individual stocks. This is why I am not a fan of mechanical 'optimization' of portfolios--whether made up of stocks or funds.