Every asset class has its energetic supporters, from rental properties to altcoins to gold. Listening to each group, you may feel that you need to own every asset class in order to be “diversified”. However, sometimes less is more, and it can be useful to read about why many seasoned veterans consciously avoid certain corners of the investment world. I find it a refreshingly different perspective, even if I may or may not agree. Everyone’s needs are different, and I own several of the things below myself. Here are a few lists along with supporting arguments.
William Bernstein – MD, author and wealth manager. I compiled this list while listening to the linked interview.
- Commodities Futures
- Individual Stocks
- Corporate bonds
- Long-term bonds
- Fixed annuities
Jonathan Clements – financial author and long-time WSJ columnist
- Savings bonds.
- Long-term bonds.
- High-yield “junk” bonds.
- Municipal bonds.
- International bonds.
- Individual stocks.
- Immediate fixed annuities (but he does plan to buy some eventually).
- Deferred income annuities.
- Gold
- Commodities
- Real Estate Investment Trusts (REITs)
- Rental properties.
- Long-term-care insurance.
- Life insurance.
- Disability insurance.
- Flood insurance.
Amy Arnott – CFA, portfolio strategist for Morningstar Research
- Actively Managed Funds
- Real Estate Investment Trusts (REITs)
- Sector Funds
- Alternative Investments
- I Bonds
- High-Yield Bonds
- Gold
Let me know if you come across any other “What I Don’t Own” lists.
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Thanks for reminding me not to follow the advice of financial writers. What is left on Jonathan Clements’ list besides passively managed index funds? Good grief, he doesn’t even like life insurance? It’s one of the best deals for heirs, passes tax free doesn’t go through probate. Lordy.
I think we all obviously do own bonds (me in a vanguard target date fund) and the Millionaire Next Door authors actually said to put all your money into Treasuries. Rental property is an extremely smart investment. I can’t make a quantitative case for gold but its been valuable for thousands of years across the world and although I don’t own any, if I was wealthy I would put 5-10% of that into physical gold.
I love insurance and have disability, term life, car, home, umbrella, etc. You can make the case against it but I believe that being able to weather the storm when something bad happens is more important than having everything optimized.
I’m guessing that Bernstein doesn’t own Individual Stocks, not Individuals Stock?
*Jonathan – thanks for a great website
No one can be an expert in everything. One would think/hope that successful people on average would be more self-aware and self-disciplined about what they are good at and what they are not. And it’s not that they can’t ever be good at those things, but expertise takes time and time is a limited resource. So the best advisors tend to focus on what they know well and are disciplined enough to avoid the areas where they would just be pure speculators like the rest of us.
So I wouldn’t read this list as some warning of what not to own. Money can be made in all corners of the market. You just have to be willing to invest the necessary time to make yourself an expert in particular area of the market, potentially at the opportunity cost of something else.
That’s interesting. Obviously various people will take issue with different items on these lists, and as you say, everyone’s needs are different.
None of them surprise me much except for 2-out-of-3 including REITs in their lists.
Reading their comments in your links though, I can appreciate the arguments of REITs not actually providing as much diversification as touted, of them introducing some sector risks, and regarding the appeal of simplification when broad market funds include REITs anyway.