The Securities and Exchange Commission's new rules to keep share prices stable help pros more than retail investors.
The law of unintended consequences often comes into play when regulations get too complex. Take the Securities and Exchange Commission’s new rules to reduce the risk of runs on money-market mutual funds.
A money fund is a strange animal. Unlike other mutual funds whose share prices rise and fall along with the value of their assets, a money fund is designed to act like a bank account: Every dollar you put in buys a share, and you’re supposed to be able to take out your money at least dollar for dollar no matter what happens in the market. For that reason, money funds typically hold safe, short-term investments.
Still, sometimes losses in a money fund’s underlying assets make each share worth less than a dollar. When that happens, a sponsor must fork over its own money to prop up the fund (as has happened many times) or it can “break the buck” and stick investors with a sudden, unexpected loss.
This unique structure gives investors a strong incentive to pull money out at the first sign of trouble. They can get their dollar while imposing even bigger losses on those left behind. (If they stay, they risk others imposing losses on them.) So they run. That happened during the 2008 financial crisis, when a large money fund broke the buck and triggered massive runs that stopped only when taxpayers stepped in with a bailout.
In response, the SEC could have required all money funds to act like other mutual funds and pay out only what their shares were actually worth. Or the agency could have let money funds keep a stable value only if fund sponsors backed it up with their own capital. Instead, faced with intense industry lobbying, the SEC has split the baby. Effective October 2016, money funds used by big institutions will have floating share values. Retail funds can maintain their $1 per share price, but they won’t have to commit capital to support the buck. Rather, the SEC decided to discourage runs by letting fund sponsors deny investors access to their money for up to 10 days or charge them a fee of as much as 2% to redeem their shares should assets fall precipitously. (This while the average money fund yields, well, almost nothing.)
To its credit, the SEC also mandated better disclosure, including daily publication of the market value of funds’ underlying assets. Alas, here comes the law of unintended consequences: Better information also increases the risk of runs because sophisticated holders will bail out before gates or fees are imposed if the value of a fund’s assets are falling.
So protect yourself, and if you need ready access to your money, keep it in an FDIC-insured bank account or use a good financial website to find a fund investing only in short-term government securities that carry almost zero risk of default. Safety first.
Sheila Bair is former chairman of the Federal Deposit Insurance Corp.
And if that's right, the problem isn't just academic. It means you are probably paying too much for your mutual funds.
In the 1990s, when I first stated writing about investing, the stars of the show on Wall Street were mutual fund managers. Now more investors know fund managers add costs without consistently beating the market. So humans picking stocks by hand are out, and quantitative systems are in.
The hot new mutual funds and exchange-traded funds are scientific—or at least, science-y. Sales materials come with dense footnotes, reference mysterious four- and five-factor models and Greek-letter statistical measures like “beta,” and name-drop professors at Yale, MIT and Chicago. The funds are often built on academic research showing that if you consistently favor a particular kind of stock—say, small companies, or less volatile ones—you can expect better long-run performance.
As I wrote earlier this year, some academic quants even think they’ve found stock-return patterns that can help explain why Warren Buffett has done so spectacularly well.
But there’s also new research that bluntly argues that most such studies are probably wrong. If you invest in anything other than a plain-vanilla index fund, this should rattle you a bit.
Financial economists Campbell Harvey, Yan Liu, and Heqing Zhu, in a working paper posted this week by the National Bureau of Economic Research, count up the economic studies claiming to have discovered a clue that could have helped predict the asset returns. Given how hard it is supposed to be to get an edge on the market, the sheer number is astounding: The economists list over 300 discoveries, over 200 of which came out in the past decade alone. And this is an incomplete list, focused on publications appearing in top journals or written by respected academics. Harvey, Liu, and Zhu weren’t going after a bunch of junk studies.
So how can they say so many of these findings are likely to be false?
To be clear, the paper doesn’t go through 300 articles and find mistakes. Instead, it argues that, statistically speaking, the high number of studies is itself a good reason to be more suspicious of any one them. This is a little mind-bending—more research is good, right?—but it helps to start with a simple fact: There’s always some randomness in the world. Whether you are running a scientific lab study or looking at reams of data about past market returns, some of the correlations and patterns you’ll see are just going to be the result of luck, not a real effect. Here’s a very simple example of a spurious pattern from my Buffett story: You could have beaten the market since 1993 just by buying stocks with tickers beginning with the letters W, A, R, R, E, and N.
Researchers try to clean this up by setting a high bar for the statistical significance of their findings. So, for example, they may decide only to accept as true a result that’s so strong there’s only a 5% or smaller chance it could happen randomly.
As Harvey and Liu explain in another paper (and one that’s easier for a layperson to follow), that’s fine if you are just asking one question about one set of data. But if you keep going back again and again with new tests, you increase your chances of turning up a random result. So maybe first you look to see if stocks of a given size outperform, then at stocks with a certain price relative to earnings, or price to asset value, or price compared to the previous month’s price… and so on, and so on. The more you look, the more likely you are to find something, whether or not there’s anything there.
There are huge financial and career incentives to find an edge in the stock market, and cheap computing and bigger databases have made it easy to go hunting, so people are running a lot of tests now. Given that, Harvery, Liu, and Zhu argue we have to set a higher statistical bar to believe that a pattern that pops up in stock returns is evidence of something real. Do that, and the evidence for some popular research-based strategies—including investing in small-cap stocks—doesn’t look as strong anymore. Some others, like one form of value investing, still pass the stricter standard. But the problem is likely worse than it looks. The long list of experiments the economists are looking at here is just what’s seen the light of day. Who knows how many tests were done that didn’t get published, because they didn’t show interesting results?
These “multiple-testing” and “publication-bias” problems aren’t just in finance. They’re worrying people who look at medical research. And those TED-talk-ready psychology studies. And the way government and businesses are trying to harness insights from “Big Data.”
If you’re an investor, the first takeaway is obviously to be more skeptical of fund companies bearing academic studies. But it also bolsters the case against the old-fashioned, non-quant fund managers. Think of each person running a mutual fund as performing a test of one rough hypothesis about how to predict stock returns. Now consider that there are about 10,000 mutual funds. Given those numbers, write Campbell and Liu, “if managers were randomly choosing strategies, you would expect at least 300 of them to have five consecutive years of outperformance.” So even when you see a fund manager with an impressively consistent record, you may be seeing luck, not skill or insight.
And if you buy funds that have already had lucky strategies, you’ll likely find that you got in just in time for luck to run out.
Even if you don't sell any mutual fund shares this year, you might owe big taxes on capital gains. Here's why — and here's how you can avoid the problem.
If you are the kind of steadfast investor who buys a mutual fund and holds it forever, prepare to pay for your loyalty next April, when you settle up your 2014 tax bill.
At the end of this year, many mutual funds are expected to distribute sizeable capital gains to shareholders who will have to pay taxes on them.
That is true of stock mutual funds that sold off last week after carrying forward big gains from 2013, and also may be true of the popular Pimco Total Return Fund, which was thrown a curve when star manager Bill Gross left Pacific Investment Management Co. in late September and the Pimco Total Return Fund was forced to sell appreciated bonds to pay off shareholders who left in his wake.
Here is why: Mutual funds must distribute realized gains to their shareholders every calendar year. Managers of both bond and stock funds have seen sizeable gains for several years running, but have not had to sell shares and realize those gains. This year, there have been some big selloffs that may have forced the managers to sell winning securities and realize those gains for tax purposes.
For individual investors, those gains might hurt more than they would have over the last few years, because a lot of investors have been offsetting their taxable gains for years with losses they carried over from the 2008-2009 rout. Now, with most of their losses used up, they will have full exposure to the gains. Long-term gains are typically taxed at 15%; those in the top tax bracket face a capital gains tax rate of 20%.
The Pimco Total Return Fund, for example, saw $48.4 billion in outflows through September, according to data from Morningstar and Pimco, and some analysts believe that could result in unusually high taxable gains.
“If Pimco sold bonds to meet redemptions at a gain, the remaining shareholders could suffer an inordinately large tax consequence,” said Tom Roseen, an analyst with Lipper, a Thomson Reuters company.
Through September, research firm Morningstar was estimating that Pimco Total Return Fund would pay out 2% of its net asset value in taxable gains, a high figure but one not out of the fund’s long-term historical range.
That means a person with $50,000 in that fund would see a $1,000 taxable gain, and — at the most common 15% capital gains tax rate — owe $150 in federal taxes on it.
Last year, the Total Return fund distributed 0.66% net asset value in gains. The year before, it distributed 2.31%, Roseen said.
Stock fund investors could be harder-hit, said Morningstar analyst Russel Kinnel. He estimates that U.S. domestic stock funds might be sitting on gains of around 20% and could end up paying 16% or 17% of their value to shareholders as gains. (When that happens, fund shareholders do not actually cash in the gain; they end up with more shares at lower prices.)
Note that none of this affects investors who hold mutual funds through tax-favored retirement accounts. They do not have to pay annual taxes on fund earnings.
For everyone else, there are very few ways to minimize the impact of those taxable gains. Here are some strategies that might help.
- If you bought recently, you might consider selling quickly. If you have not seen much of a gain in a fund you bought, or if you have actually sustained a loss, you can sell shares and either use your capital loss to offset other gains, or at least get out before the gain is distributed. That strategy will not work if you have been in the fund long enough to rack up your own gains – then you will just have to pay taxes on them when you sell.
- Think before you buy. The people who will get hardest-hit by these year-end mutual fund taxes are people who have not owned the funds for long. They buy in just before the distribution, miss out on the actual gains, but get hit with the taxable distribution anyway. Do not buy any funds this year until you have checked with the fund company to find out when it is distributing 2014 gains. If you think it is a fund that is sitting on big gains, wait until that date passes before making your purchase.
- Take losses. If you own any stocks or funds that have lost money since you have held them, sell and reap the loss. It can offset those fund gains.
- Relax. At 15% for most people (20% for top tax bracketeers), the capital gains tax is still much lower than regular income taxes. And there are worse things than having to pay taxes because you made money.
Brokers, according to an October memo, can recommend clients buy bond funds at the center of a recent $5.2 million settlement and hundreds of arbitration claims.
UBS is sticking with its recommendations that some clients buy risky Puerto Rico closed-end bond funds, despite hundreds of arbitration claims by investors who blame the securities for huge losses, according to an internal document.
UBS told brokers that they may continue to recommend the funds to clients following a $5.2 million settlement last week with Puerto Rico’s financial institutions regulator about sales practices involving the funds, according to an Oct. 9 internal memo reviewed by Reuters.
However, brokers “should continue to evaluate investment recommendations in a manner consistent with UBS policies and FINRA rules,” the firm said in the four-page memo, written in a question and answer format. FINRA, the Financial Industry Regulatory Authority, is Wall Street’s industry-funded watchdog.
Brokers who have questions about whether a “particular investment recommendation” is suitable should contact their branch manager or the firm’s compliance department, UBS wrote.
It is unclear who wrote the memo, which is unsigned.
A UBS spokeswoman did not say whether the firm planned to give more specific guidance to brokers. She said brokers consider “each client’s entire range of wealth management needs and goals when devising their financial plans.”
She noted that Puerto Rico municipal bonds and closed end funds provided excellent returns for more than a decade, as well as tax benefits.
FINRA requires that investment recommendations be “suitable” for investors, based on factors such as risk tolerance and age.
Lawsuits have been mounting, and there are more than 500 arbitration claims against UBS following a sharp decline in the value of Puerto Rico municipal bonds last year. Investors in closed-end funds with heavy exposure to those bonds suffered deep losses.
Puerto Rico regulators interviewed a sampling of UBS clients while looking into the firm’s bond fund sales practices. Those interviewed were elderly with low net worth and conservative investment goals, according to the settlement with UBS, also on Oct. 9. UBS did not admit to any wrongdoing as part of the deal.
According to the settlement, six UBS brokers in Puerto Rico “may have” directed their clients to improperly borrow money in order to buy the funds. Lawyers handling the arbitration cases said the investors’ losses were magnified because they invested through the illegal loans, sold through UBS Bank USA of Utah.
Even without the added leverage, analysts say funds that invest heavily in Puerto Rico debt still carry significant risk. Ratings agencies have cut Puerto Rico’s debt to junk status because of significant default risks.
Puerto Rico has an onerous debt burden that faces headwinds of a weak economy and significant unfunded pension obligations, said Morningstar analyst Beth Foos. She declined to comment specifically on the UBS funds.
Analysts said investors continue to buy Puerto Rico bonds, drawn to tax advantages and attractive yields as high as 7.75 percent, even though there is a significant risk that the U.S. territory will not be able to repay its bond obligations.
Index funds are winning big, but there’s still a small place for stock pros in your portfolio.
A generation ago, “actively managed” mutual funds—that is, portfolios run by traditional stock and bond pickers—weren’t just the norm; the managers themselves were larger-than-life figures such as Peter Lynch, John Neff, and Bill Gross.
Today you might not be able to name many of the pros who invest on your behalf, with perhaps the exception of Gross—though not for stellar recent performance, but rather due to the public spat between the “bond king” and Pimco, the firm that Gross put on the map.
This is to be expected. Over the past year, nearly 70% of the new money invested in mutual and exchange-traded funds has gone into index portfolios, like Vanguard Total Stock Market Index, now the biggest fund in the world.
Such funds aren’t really managed at all. They don’t try to pick and choose the “best” investments, but rather hold all the securities in a market benchmark like the S&P 500.
Individual investors aren’t the only ones rethinking their approach. The influential California Public Employees’ Retirement System recently indicated that it intends to embrace more indexing in its $295 billion portfolio.
Why? Countless studies show that forces are stacked against the fund pros, which explains their poor performance (see chart). Over the past five years only two in 10 funds that invest in blue-chip U.S. stocks and three in 10 foreign funds beat their benchmarks.
That doesn’t mean that fund managers no longer have a place in your portfolio. Some — like those in the MONEY 50, our recommended list of funds and ETFs—have beaten the odds. Yet even those managers should play a limited role in your strategy.
Build your portfolio’s foundation with index funds
It’s not that professional investors are all lousy at their jobs. A study of more than 3,000 actively managed stock funds from 1979 to 2011 found that managers on average generated risk-adjusted returns that were actually better than their benchmarks. Trouble is, that’s before factoring in fees.
“There is indeed skill, but the average extra return managers generate is not enough to offset the average extra fees that come with active management,” says Lubos Pastor, a professor at the University of Chicago Booth School of Management, who co-wrote the study.
So use low-cost index funds and ETFs for the core part of your portfolio: your long-term stakes in U.S. and foreign equities and some bonds. While the average actively managed stock fund sports an annual expense ratio of 1.4% of assets, many index funds charge between 0.10% and 0.40%.
Rick Ferri, founder of the advisory firm Portfolio Solutions, suggests indexing at least 75% of your money. “Betting on the passive horse means you might not win every year,” he says, “but you know you are going to at least place.”
You can add managers to your core — but only the right kinds
“A low-cost actively managed fund can be as good as or better than an index,” says John Rekenthaler, vice president of research at Morningstar. He compared Vanguard’s low-fee actively managed portfolios in various categories with the firm’s index funds. All funds — both active and index — had total returns that ranked in the top 50% of their category for the past 15 years. But Vanguard’s active U.S. stock funds, international stock funds, and allocation funds actually had better returns than the index funds in those categories.
Examples of cheaper-than-average actively managed funds with a solid record in the MONEY 50 include Vanguard International Growth and Dodge & Cox International. Their annual fees are 0.48% and 0.64%, among the lowest for international equity portfolios. Even better, both are team-managed, which offers you protection in case one of the managers switches jobs or retires.
Treat active funds like specialty investments
There are some niche categories of investments where index funds themselves are costly to run and may not be that diversified. For those reasons, Ferri recommends you skip the index options for municipal or high-yield bond funds.
Also, there may be instances when you’d be willing to pay for unique strategies. FPA Crescent, with an expense ratio of 1.14%, mostly owns stocks. But lead manager Steve Romick is also willing to go to corporate bonds, preferred shares, or even cash if he sees better value.
That kind of flexibility makes it hard to use the fund for the bulk of your holdings. Still, in the past 15 years the fund’s 10% annual return doubled the S&P 500’s gains. And those are the kinds of big results you hope for when taking a chance on a fund manager.
$10 billion left mutual fund giant Pimco in one day after "bond king" Bill Gross announced his departure. Should you head for the exits too?
The Wall Street Journal has reported that investors on Friday pulled out $10 billion from funds run by Pacific Investment Management Co., or Pimco. The redemptions came after news of the departure of Bill Gross, the company’s chief investment officer and manager of the $220 billion Pimco Total Return bond mutual fund.
For a sense of scale: Pimco is a huge, $2 trillion money manager, so that’s 0.5% of its assets. Even so, it’s a lot of money to go out the door in one day, and the company has been struggling to hang on to investors for some time, largely as a result of Total Returns’ recent mediocre performance.
Pimco’s funds are widely held in many 401(k) retirement plans. If you don’t watch Wall Street regularly, but are tuning in now because there’s a Pimco fund in your plan, don’t be too alarmed. Mutual funds don’t necessarily decline in value just because a lot of people sell.
A fund is designed to allow investors to redeem shares each day for the value of underlying assets, and its shares don’t rise and fall based on investors’ demand for the fund. You shouldn’t worry about getting out of Pimco “too late,” and nor is there any opportunity to be had in buying “on the dip.” (A nerdish caveat: A wave of redemptions can impact performance if it forces a fund to sell investments at a bad time in order to raise cash, but managers generally design their portfolios to handle the possibility of redemptions.)
Analysts expect even more money to leave Pimco. Thomas Seidl, who follows Pimco’s parent company Allianz for Bernstein Research, predicts that between 10% and 30% of the money Pimco runs for outside clients (that is, not related to Allianz) may eventually leave the company. That adds up to $170 billion to $530 billion.
Why is the departure of one man, even a star once known as the “bond king,” triggering so many to get out Pimco?
One reason for people to go is quite rational. As Money’s Penelope Wang argued on Friday, there isn’t a great case for buying an actively managed bond fund such as Pimco Total Return, as opposed to a low cost index fund that simply tracks the wider market.
The returns on bonds don’t vary as widely as they do on stocks, which gives even the best funds less room to outperform the market average. That means a fund that keeps annual expenses low, as index funds do, starts with a big built-in advantage. Gross’s departure from Pimco is a good time for current Total Return shareholders to reassess whether they want to spend the extra money for a manager who tries to outwit the rest of the market.
But not everyone running from Pimco is going the index route. DoubleLine funds, run by Jeff Gundlach, is reporting big inflows. Gundlach is the bond world’s new hot manager. The institutional share class of his DoubleLine Total Return Bond fund earned over 5% in the past 12 months, vs. 3.5% for the comparable Pimco Total Return fund. Other investors may go to Janus, Gross’s new employer.
Bernstein’s Seidl thinks most of the outflows he anticipates will come from retail investors concerned about performance. Although Pimco has a deep management bench and impressive research capabilities, most investors picking a bond fund are making a bet on a manager’s judgement and feel for the markets. With Gross leaving Pimco, investors may not feel they have much to go on in deciding whether to hold Pimco Total Return. “Performance builds up over time — it takes a number of years,” says Seidl.
Of course, that’s assuming even performance is a helpful guide. Gross built up a brilliant record, and then misjudged the bond market in 2011, and then again in 2013. Bad luck for him, but even more so for the typical Pimco Total Return investor. As the Journal‘s Jason Zweig observes, much of the money in Gross’s fund came in after his best years, and just in time for his mediocre ones.
In short, it may make sense to go now, if you want to get costs down and taxes aren’t an issue. (Your trade won’t trigger taxes if the fund is inside a 401(k) or IRA). But think twice about trying to find the next new bond star.
One-time star manager Bill Gross is leaving. The case for choosing an index fund for your bonds has never looked better.
For many bond fund investors, star fixed-income manager Bill Gross’s sudden leap from Pimco to Janus is a moment to rethink. Gross’s flagship mutual fund, Pimco Total Return long seemed like the no-brainer fixed-income choice. Over the past 15 years, Gross had steered Total Return to a 6.2% average annual return, which placed it in the top 12% of its peers. And based on that track record it became the nation’s largest fixed income fund.
But much of that performance was the result of past glory. Over the past five years, Pimco has fallen to the middle of its category, as Gross’s fabled ability to outguess interest rates faded. It ranks in the bottom 20% of its peers over the past year, and its return of 3.9% lags its largest index rival, $100 billion Vanguard Total Bond Market, by 0.5%.
Nervous bond investors have yanked nearly $70 billion out of the fund since May 2013. Those outflows are driven not only because of performance but also because of news stories about Gross’s behavior and personal management style. Still, Pimco Total Return holds a massive $222 billion in assets, down from a peak of $293 billion, and it continues to dominate many 401(k)s and other retirement plans as the core bond holding.
If you’re one of the investors hanging on to Pimco Total Return, you’re probably wondering, should I sell? Look, there’s no rush. Your portfolio isn’t in any immediate trouble: Pimco has a lot of other smart fixed-income managers who will step in. And even if you can’t expect above-average gains in the future, the fund will likely do okay. The bigger issue is whether you should hold any actively managed bond fund as your core holding.
The simple truth is most actively managed funds fail to beat their benchmarks over long periods. Gross’s impressive record was an outlier, which is precisely why he got so much attention. That’s why MONEY believes you are best off choosing low-cost index funds for your core portfolio. With bond funds, the case for indexing is especially compelling, since your potential returns are lower than for stocks, and the higher fees you pay to have a human guiding your fund can easily erode your gains.
Our MONEY 50 list of recommended funds and ETFs includes Harbor Bond, which mimics Pimco Total Return, as an option for those who want to customize their core portfolio with an actively managed fund. When issues about Pimco Total Return first began to surface, we recommended hanging on. But with Gross now out of the picture, we are looking for the right replacement.
If you do choose to sell, be sure to weigh the potential tax implications of the trade. Here are three bond index funds to consider:
*Vanguard Total Bond Market Index, with a 0.20% expense ratio, which is our Money 50 recommendation for your core portfolio.
*Fidelity Spartan U.S. Bond, which charges 0.22%
*Schwab Total Bond Market, which charges 0.29%
All three funds hold well-diversified portfolios that track large swaths of the bond market, including government and high-quality corporate issues. Which one you pick will probably depend on what’s available in your 401(k) plan or your brokerage platform. In the long-run, you’re likely to get returns that beat most actively managed bond funds—and without any star manager drama.
A performance artist in Austria piles on to the case against "active management" by finding yet another animal that seems to invest better than humans.
An Austrian performance artist claims to be breeding and training rats to be able to beat the investment returns of highly educated and paid professional investors.
The artist, Michael Marcovici, says he trained the rodents to trade in foreign exchange and commodities. He did so by converting market information into sounds and rewarded the rats with food when they predicted price movements correctly and inflicted a small electric shock when they didn’t. (If only hedge fund managers could be compensated in similar fashion.) The rats are placed in a Skinner Box with a speaker, red and green lights, a food dispenser and an electrical floor to deliver the shock.
Marcovici says rats can be trained in three months, are able to learn any segment of the market and “outperform most human traders.” This may seem like an outlandish claim, but this kind of thing isn’t altogether new.
UK’s The Observer held a challenge in 2012 between a “a ginger feline called Orlando,” a pack of schoolchildren and a few wealth and fund managers to see which could produce the biggest returns over the course of the year.
The cat won.
Long before Orlando’s victory, Princeton economist Burton Malkiel wrote that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts,” in his book “A Random Walk Down Wall Street.”
Add this to the overwhelming evidence that largely unmanaged index funds — that simply buy and hold all the securities in a market — often outperform professional stock pickers.
Just this month S&P Dow Jones Indices Versus Active funds scorecard for the first six months of the year, which showed that 60% of actively managed domestic large cap funds underperformed their benchmarks.
That’s in addition to 58% of domestic mid-cap and 73% of small cap funds losing out. If you extend the record out five years, more than “70% of domestic equity managers across all capitalization and style categories failed to deliver higher returns than their respective benchmarks.”
What does this mean for your portfolio? As Morningstar.com’s John Rekenthaler noted in a recent article, active funds may not have much of a future.
Passively managed mutual funds and exchange-traded funds, Rekenthaler points out, enjoyed 68% of the net sales for U.S. ETFs and mutual funds over the past year. That leaves 32% for active funds. Meanwhile, target-date funds account for $30 billion of the $134 billion in inflows for active funds over the past 12 months. Even on this front, passive target date funds sales are growing.
In fact, the only real growth area for actively managed funds are in so-called alternatives that invest in things like currencies and that charge annual fees of close to 2% of assets. That’s a lot of cheese.
You’re generally better off staying clear of professional security pickers.
No, this doesn’t mean you should find a rat, cat, or monkey to manage your 401(k). Instead, go the passive index route and select three basic building block funds from our MONEY 50 selection (like say Vanguard Total Bond Market Index, Schwab Total Stock Market Index and Vanguard Total International Stock Index) and you can achieve basic diversification at a price that won’t make you as poor as a church mouse.