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I have determined the following ratio for the Equity portion of my investments:

30%: Intl Equity
40%: US large cap
30%: US small and mid cap

Now, I have some funds invested in a S&P 500 Index fund with Schwab. However, now the total picture is such that I need to put more funds in the "US small and mid cap" bucket. But, there's no index fund at Schwab which has a good ROI. Is a further diversification advisable?

  • What do you consider "good" ROI? At my broker I see several small-cap index funds with average 5-year returns of over 12%, and 2 Schwab funds just under 12% (SFSNX, SWSSX) – D Stanley May 22 '18 at 13:40
  • Last year I was looking into putting some $$$ into Managed Money. Schwab was among those that I considered because of their low fees. Compared to other discount brokers, the MM with similar equity/fixed allocations at Schwab did not have enticing performance (ROI) and I dropped them from consideration. – Bob Baerker May 27 '18 at 14:47
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Yes, you could potentially benefit from more diversification.

Specifically, consider adding fixed income investments and some cash—even if you are young, and even if you have appetite for risk and like equities above all else. I wrote an answer about this for this other question: Should I exclude bonds from our retirement investment portfolio if our time horizon is still long enough?

  • Good call, but it would be good to note that the "benefit" here is lower risk, not necessarily higher expected returns. – D Stanley May 22 '18 at 13:41
  • @DStanley Lower risk is the primary benefit, yes. As for returns, there may be a rebalancing bonus by holding lower correlation assets in a portfolio, and maintaining target weights. See here. e.g. A portfolio with 70% stocks and 30% in cash can, after a market correction, rebalance to targets and thus buy more stock cheap, before the next rise. A portfolio that is already 100% in stocks has no such buying opportunity at a bottom. Similarly, rebalancing would sell some stock when prices are too dear. – Chris W. Rea May 22 '18 at 15:36
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With all the information you provided: yes. You should diversify more.

Serious answer: How much you want to diversify depends on the level of risk you want to take and the amount of money you want to invest. Do you have $1 ? Put it all into a single stock. $100 ? maybe 2. $1B ? Maybe diversify a little more and definitely throw some bonds in there.
Don't need the money anytime soon ? No need to diversify more. If the US tanks so hard that the 70% you have in US stocks actually go down significantly, chances are that the international markets will as well. Added bonus: in that case even bonds might not help you.

  • Thank you xyious. That anwers my question. So, I have some money in bonds too. – user65003 May 30 '18 at 18:26

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