Diversify across multiple brokers?
You should ensure that your broker is a member of the Securities Investor Protection Corporation (SIPC). SIPC protects the cash and securities in your brokerage account much like the Federal Deposit Insurance Corporation (FDIC) protects bank deposits. Securities are protected with a limit of $500,000 USD. Cash is protected with a limit of $250,000 USD. It should be noted that SIPC does not protect investors against loss of value or bad advice. As far as having multiple brokerage accounts for security, I personally don’t think it’s necessary to have multiple accounts for that reason. Depending on account or transaction fees, it might not hurt to have multiple accounts. It can actually be beneficial to have multiple accounts so long as each account serves a purpose in your overall financial plan. For example, I have three brokerage accounts, each of which serves a specific purpose. One provides low cost stock and bond transactions, another provides superior market data, and the third provides low cost mutual fund transactions. If you’re worried about asset security, there are a few things you can do to protect yourself. I would recommend you begin by consulting a qualified financial advisor about your risk profile. You stated that a considerable portion of your total assets are in securities. Depending on your risk profile and the amount of your net worth held in securities, you might be better served by moving your money into lower risk asset classes. I’m not an attorney or a financial advisor. This is not legal advice or financial advice. You can and should consult your own attorney and financial advisor.
You're missing the concept of systemic risk, which is the risk of the entire market or an entire asset class. Diversification is about achieving a balance between risk and return that's appropriate for you. Your investment in Vanguard's fund, although diversified between many public companies, is still restricted to one asset class in one country. Yes, you lower your risk by investing in all of these companies, but you don't erase it entirely.  Clearly, there is still risk, despite your diversification. You may decide that you want other investments or a different asset allocation that reduce the overall risk of your portfolio. Over the long run, you may earn a high level of return, but never forget that there is still risk involved. bonds seem pretty worthless, at least until I retire According to your profile, you're about my age. Our cohort will probably begin retiring sometime around 2050 or later, and no one knows what the bond market will look like over the next 40 years. We may have forecasts for the next few years, but not for almost four decades. Writing off an entire asset class for almost four decades doesn't seem like a good idea. Also, bonds are like equity, and all other asset classes, in that there are different levels of risk within the asset class too. When calculating the overall risk/return profile of my portfolio, I certainly don't consider Treasuries as the same risk level as corporate bonds or high-yield (or junk) bonds from abroad.  Depending on your risk preferences, you may find that an asset allocation that includes US and/or international bonds/fixed-income, international equities, real-estate, and cash (to make rebalancing your asset allocation easier) reduces your risk to levels you're willing to tolerate, while still allowing you to achieve returns during periods where one asset class, e.g. equities, is losing value or performing below your expectations. In the past 10 years there have been mutual funds that would act as a single bucket of stocks and bonds. A good example is Fidelity's Four In One. The trade off was a management fee for the fund in exchange for having to manage the portfolio itself and pay separate commissions and fees. These days though it is very simple and pretty cheap to put together a basket of 5-6 ETFs that would represent a balanced portfolio. Whats even more interesting is that large online brokerage houses are starting to offer commission free trading of a number of ETFs, as long as they are not day traded and are held for a period similar to NTF mutual funds.  I think you could easily put together a basket of 5-6 ETFs to trade on Fidelity or TD Ameritrade commission free, and one that would represent a nice diversified portfolio. The main advantage is that you are not giving money to the fund manager but rather paying the minimal cost of investing in an index ETF. Overall this can save you an extra .5-1% annually on your portfolio, just in fees. Here are links to commission free ETF trading on Fidelity and TD Ameritrade. There's some risk, but it's quite small: The only catastrophic case I can think of is if the brokerage firm defrauded you about purchasing the assets in the first place; e.g., when you ostensibly put money into a mutual fund, they just pocketed it and displayed a fictitious purchase on their web site.  In that case, you'd have no real asset to legally recover.  I think the more realistic risks you should be concerned with are: The only major brokerage firm that I'm aware of that accepts liability for theft is Charles Schwab: http://www.schwab.com/public/schwab/nn/legal_compliance/schwabsafe/security_guarantee.html If you're going to diversify for security reasons, be sure to use different passwords, email addresses, and secret question answers on the two accounts. Depends on the fund. If it's a Target Date fund, which is inherently diversified, this comes down to how much you trust the investment house to not go belly-up. If it's another kind of fund, you need to manage your own duversification and occasional rebalancing.  Most of my money is in index funds (details elsewhere), but that's five or six very different indexes to cover the investment space with the mix of investment types I've selected. And most of it is in a single family of funds, which might be argued to be higher risk than desirable but which has been convenient. In a word, no. Diversification is the first rule of investing.  Your plan has poor diversification because it ignores most of the economy (large cap stocks).  This means for the expected return your portfolio would get, you would bear an unnecessarily large amount of risk.  Large cap and small cap stocks take turns outperforming each other.  If you hold both, you have a safer portfolio because one will perform well while the other performs poorly.  You will also likely want some exposure to the bond market. A simple and diversified portfolio would be a total market index fund and a total bond market fund.  Something like 60% in the equity and 40% in the bonds would be reasonable.  You may also want international exposure and maybe exposure to real estate via a REIT fund. You have expressed some risk-aversion in your post.  The way to handle that is to take some of your money and keep it in your cash account and the rest into the diversified portfolio. Remember, when people add more and more asset classes (large cap, international, bonds, etc.) they are not increasing the risk of their portfolio, they are reducing it via diversification.  The way to reduce it even more (after you have diversified) is to keep a larger proportion of it in a savings account or other guaranteed investment. BTW, your P2P lender investment seems like a great idea to me, but 60% of your money in it sounds like a lot. Diversified is relative. Alfred has all his money in Apple.  He's done very well over the last 10 years, but I think most investors would say that he's taking an incredible risk by putting everything on one stock. Betty has stock in Apple, Microsoft, and Google.  Compared to Alfred, she is diversified. Charlie looks at Betty and realizes that she is only investing in one particular industry.  All the companies in an individual industry can have a downturn together, so he invests everything in an S&P 500 index fund. David looks at Charlie and notes that he's got everything in large, high-capitalization companies.  Small-cap stocks are often where the growth happens, so he invests in a total stock market fund. Evelyn realizes that David has all his money tied up in one country, the United States.  What about the rest of the world?  She invests in a global fund. Frank really likes Evelyn's broad approach to equities, but he knows that some portion of fixed-income assets (e.g. cash deposits, bonds) can reduce portfolio volatility—and may even enhance returns through periodic rebalancing. He does what Evelyn does, but also allocates some percentage of his portfolio to fixed income, and intends to maintain his target allocations. Being diversified enough depends on your individual goals and investing philosophy.  There are some who would say that it is wrong to put all of your money in one fund, no matter what it is.  Others would say that a sufficiently broad index fund is inherently diversified as-is. I've been a retail trader for close to 7 years and while I have a specialized futures account, I use Interactive Brokers for my other trading. They charge per share or contract rather than per trade (good for smaller accounts  or if you want to piece into and out of positions). You can also trade just about anything. Futures, options, options on futures, individual stocks, ETFs, Bonds (futures), currencies. The interface is pretty good as well. I have seperate charts (eSignal) so I'm not sure how good their charting is "Diversification is extremely important and the one true ""Free Lunch"" of investing, meaning it can provide both greater returns and less risk than a portfolio that is not diversified. The reason people say otherwise is because they are talking about ""true"" portfolio diversification, which cannot be achieved by simply spreading money across stocks. To truly diversify a portfolio it must be diversified across multiple, unrelated ""Return Drivers."" I describe this throughout my best-selling book and am pleased to provide complimentary links to the following two chapters, where I discuss the lack of diversification from spreading money solely across stocks (including correlation tables), as well as the benefits of true portfolio diversification: Jackass Investing - Myth #8: Trading is Gambling – Investing is Safer Jackass Investing - Myth #20: There is No Free Lunch" Yes, the larger number of ETFs will have a greater chance of enhancing the effect you observe. It's beyond a simple discussion, but the bottom line is that by carving out the different market segments your rebalancing will have greater impact. Why not figure out the % composition   of the index and invest in the   participating securities directly? This isn't really practical.   Two indices I use follow the Russell 2000 and the S&P 500 Those two indices represent 2500 stocks. A $4 brokerage commission per trade would mean that it would cost me $10,000 in transaction fees to buy a position in 2500 stocks. Not to mention, I don't want to track 2500 investments. Index funds provide inexpensive diversity. I guess I wasn't clear. I want to modestly leverage (3-4x) my portfolio using options. I believe long deep-in-the-money calls would be the best way to do this? (Let me know if not.)  It's important to me that the covariance matrix from the equity portfolio scales up but doesn't fundamentally change. (I liken it to systemic change as opposed to idiosyncratic change.)   This is what I was thinking:  * For the same expiry date, find each positions lowest lambda. * Match all option to the the highest of the lowest lambda. * Adjust number of contracts to compensate for higher leverage.  I don't think this will work because if I matched the lowest lambda of options on bond etfs to my equity options they would be out-of-the-money.  By the way, thanks for your time. "When you have multiple assets available and a risk-free asset (cash or borrowing) you will always end up blending them if you have a reasonable objective function.  However, you seem to have constrained yourself to 100% investment.  Combine that with the fact that you are considering only two assets and you can easily have a solution where only one asset is desired in the portfolio.  The fact that you describe the US fund as ""dominating"" the forign fund indicates that this may be the case for you.  Ordinarily diversification benefits the overall portfolio even if one asset ""dominates"" another but it may not in your special case. Notice that these funds are both already highly diversified, so all you are getting is cross-border diversification by getting more than one.  That may be why you are getting the solution you are.  I've seen a lot of suggested allocations that have weights similar to what you are using. Finding an optimal portfolio given a vector of expected returns and a covariance matrix is very easy, with some reliable results.  Fancy models get pretty much the same kinds of answers as simple ones.  However, getting a good covariance matrix is hard and getting a good expected return vector is all but impossible.  Unfortunately portfolio results are very sensitive to these inputs.  For that reason, most of us use portfolio theory to guide our intuition, but seldom do the math for our own portfolio.  In any model you use, your weak link is the expected return and covariance.  More sophisticated models don't usually help produce a more reasonable result. For that reason, your original strategy (80-20) sounds pretty good to me.  Not sure why you are not diversifying outside of equities, but I suppose you have your reasons." Each S-corp is bound by its own plan documents, which typically do not limit or dictate where the investments are held. Your brokerage account has no tie to the company from which the funds come, however, you are still subject to maximum SIMPLE contribution rules and cannot exceed the $12,500 (if under age 50) COMBINED contribution for any and all companies. Be careful about co-mingling from both companies as there are penalties for early withdrawals made within 2-years of participating in the plan. If you started them both at the same time it's not an issue. I've looked into Thinkorswim; my father uses it. Although better than eTrade, it wasn't quite what I was looking for. Interactive Brokers is a name I had heard a long time ago but forgotten. Thank you for that, it seems to be just what I need. "If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock.    This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks.  Conclusion: After purchasing 6-8 stocks, benefits of adding stocks to decrease risk are small.   Overall market risk won't be eliminated merely by adding more stocks.  And that's just specific stocks. So you're very right that allocating a 1% share to a specific type of fund is not going to offset your other funds by much. You are correct that you can emulate the lifecycle fund by simply buying all the underlying funds, but there are two caveats: Generally, these funds are supposed to be cheaper than buying the separate funds individually. Check over your math and make sure everything is in order. Call the fund manager and tell him about your findings and see what they have to say. If you are going to emulate the lifecycle fund, be sure to stay on top of rebalancing. One advantage of buying the actual fund is that the portfolio distributions are managed for you, so if you're going to buy separate ETFs, make sure you're rebalancing. As for whether you need all those funds, my answer is a definite no. Consider Mark Cuban's blog post Wall Street's new lie to Main Street - Asset Allocation. Although there are some highly questionable points in the article, one portion is indisputably clear:  Let me translate this all for you. “I want you to invest 5pct in cash and the rest in 10 different funds about which you know absolutely nothing. I want you to make this investment knowing that even if there were 128 hours in a day and you had a year long vacation, you could not possibly begin to understand all of these products. In fact, I don’t understand them either, but because I know it sounds good and everyone is making the same kind of recommendations, we all can pretend we are smart and going to make a lot of money. Until we don’t"" Standard theory says that you want to invest in low-cost funds (like those provided by Vanguard), and you want to have enough variety to protect against risk. Although I can't give a specific allocation recommendation because I don't know your personal circumstances, you should ideally have some in US Equities, US Fixed Income, International Equities, Commodities, of varying sizes to have adequate diversification ""as defined by theory."" You can either do your own research to establish a distribution, or speak to an investment advisor to get help on what your target allocation should be."