Author Topic: Concentration risk - too much money with one manager?  (Read 2570 times)

bigchrisb

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Concentration risk - too much money with one manager?
« on: January 07, 2014, 04:27:38 PM »
I invest in mostly stocks, with a mix of individual shares, closed end funds and index tracking ETFs.  Its been nice to simplify my holdings a bit by having a limited number of ETFs.  However, I'm starting to worry about how much I have tied to a single manager, in case of a black swan style event occurring.  I'm sure the investors with Madoff thought they were fairly safe, as how could a money manager of tens of billions run into trouble?

In particular, I have most of my international shares invested through Vanguard (approx $300k, or 25% of my net worth).  I'm starting to get to the point where I'm thinking I should have my eggs a little more spread, just in case something happens to Vanguard, or to the way that cross listed (US/Australian) funds are treated.

Anyone else given this much though, about limiting how much exposure they have to a single manager?  Most of the talk I see here about diversification is around asset allocation and not managing entity diversification? 

And before the bogleheads take this for an attack on Vanguard, its not intended to be, it just happens to be that Vanguard is teh manager I have with the greatest holding (because I think they are great!)

Frankies Girl

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wtjbatman

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Re: Concentration risk - too much money with one manager?
« Reply #2 on: January 07, 2014, 06:58:18 PM »
If I had your portfolio size, I wouldn't have a problem diversifying where my money is held.

Now, I think the link FG posted points out two key things. One, you don't necessarily have to worry about a Madoff type of financial disaster due to how Vanguard is structured. Two, if you still don't want to keep that much money with one company (can't say I blame you), whether it's simply under their umbrella or not, start up accounts with Fidelity or Price or one of the other mutual fund companies out there. There's no harm in spreading your wealth around a little.

Vanguard is mentioned the most, especially by Bogleheads (lots of them here), but it's really not the only game in town. My ETFs are with TD Ameritrade.

Sydneystache

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Re: Concentration risk - too much money with one manager?
« Reply #3 on: January 08, 2014, 12:12:53 AM »
Anyone else given this much though, about limiting how much exposure they have to a single manager?  Most of the talk I see here about diversification is around asset allocation and not managing entity diversification? 

Yes, of course. I have 5 SRI funds being differently managed by a church to the commercial and highly geared. Eggs in one basket and all that. I entered into SRI funds expecting it to underperform the run of the mill funds but in some years it has marginally done better. Better to have diversity in SRI given how it has only been around 15 years or so.

As an aside, I have been selling down one SRI fund that includes tobacco, gambling and nuclear. I tried to close it the other day but they got an analyst to stop me from doing so. I found the thread regarding ethics in index funds really informative, hence I didn't invest with the BlackRock-run index funds here.

marty998

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Re: Concentration risk - too much money with one manager?
« Reply #4 on: January 08, 2014, 03:37:24 AM »
Unfortunately my employer is an unmustachian choice. Suffice to say we have one of the best, if not the best AP GEM investment teams in the world. You will pay through the nose for it, but we have outperformed every global equity benchmark index every year for over 20 years now.


kyleaaa

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Re: Concentration risk - too much money with one manager?
« Reply #5 on: January 08, 2014, 08:24:35 AM »
If you are worried, go ahead and diversify a bit. Both Fidelity and Schwab have excellent low-cost index options. Comparing Vanguard, Fidelity, or any other mutual fund company/broker to Madoff is apples to oranges, though. Fund companies/brokerages are heavily regulated and have a ton of mandatory built-in protections. Funds like the kind Madoff ran are not. If Madoff investors thought their money was safe, they clearly didn't do their homework since they didn't have most of the regulatory protections mutual fund investors enjoy.