ARCHIVED BLOG, PLEASE NOTE: The information below was posted prior to any affiliation with LPL Financial and is posted here for historical purposes only
Don’t put all your eggs in one basket. We have all heard this age-old adage our whole lives. In some instances, this makes a lot of sense. For example, if you are helping your son or daughter apply to colleges. It makes practical sense to apply to numerous colleges.
However, there are certainly times that this does not make sense. You might have several doctors you see for different specialties, but you only have one primary care physician (PCP). Most of us would never think to have two separate PCPs. What if they are each separately prescribing medications that are dangerous to take together? That is certainly not in your best interest as the patient. As an investor, this can trigger similar risks.
If you work for the University of Michigan, you probably are aware that you have two options when it comes to investing in your retirement plans: Fidelity and TIAA CREF. When I am meeting with a UofM employee for the first time, I often find out that they have saving 50% of their contributions into Fidelity and 50% of their contributions into TIAA CREF. When I ask them why they made that choice, they share that they did not know enough to only choose one provider. Then comes the classic statement “I did not want to put all my eggs in one basket.”
While I would certainly agree diversification is a key metric to increasing the likelihood of achieving your financial goals, utilizing two separate providers can hinder your diversification. You are likely to be investing in the same asset classes with both companies, whether through individual mutual funds or a Target Date fund. If you are paying two separate investment managers at two separate investment providers to do the same job, you are at risk of decreasing efficiencies.
Even within each separate investment provider, many investors will confuse owning numerous different funds with being diversified. Many funds will purchase the same stocks, so are you truly diversified? Until you begin peeling away the layers to determine your underlying investments, it is impossible to answer that question.
Here at Evangelista & Associates, we are able to assist our clients with investments at both TIAA CREF and Fidelity. However, we generally only recommend one. We regularly complete investment option comparisons between the two providers, and we consistently see one provider offering stronger options across multiple asset classes.
If you would like to take a closer look at which provider(s) you have chosen to see if now might be the right time to make a change, please email me firstname.lastname@example.org start a conversation.
We are not affiliated, associated, authorized, endorsed by, or in any way officially connected with the University of Michigan, or any of its subsidiaries or its affiliates.