“You’re Crazy to Have a Single Fund Portfolio…”

"You're Crazy to Have a Single Fund Portfolio..."


I saw a headline during my morning blog reading the other day that jumped out to me as ‘crazy talk’. I guess as far as the blogger is concerned, the headline worked – it grabbed my attention. But once I gave up the sacred click and dove into his post, I started thinking to myself that a single fund portfolio is reckless, at best. And at worst – catastrophic. 


“Investing in a single fund portfolio is just downright crazy,” was my stance 


Then all I had to was find the information to back up my claim… 




As I researched and contemplated over the course of a few days, my data backed up my hypothesis. Not diversifying is dangerous.  


But on Research Day 3 – I noticed a scarlet letter forming on my chest


“H” is for “Hypocrite”, Mike. 




“F” is for “Fraud”!


As I was buttoning up my closing remarks, it hit me that I have been investing in and touting a single fund portfolio myself!!






That sledgehammer of a realization hit me hard. 



Shame, bruh. Shame…


(But a killer jam)


So, below, we’ll dive into my railing against a single fund portfolio and how they’re ‘crazy’, exactly why I’m a hypocrite, and what I’m doing to reconcile my sense of hypocrisy and internal struggle. 


What could go wrong here??



Remember – the genesis of me now questioning every foundational thought I’ve ever had about finance came from reading a blog article.


(Blogs are cool, kids…)


Now, the blogger wasn’t exactly outlining a single stock pick as his fund de jour 


It was an index fund, which essentially is a mutual fund in the sense that it pulls in multiple stocks together by distributing a small percentage of your purchased ‘share’ into each stock within the fund. 


There’s much more to be said about index funds, no doubt, but for this post’s purposes – we’ll leave it there. 


I’m more interested in the philosophy of investing all of your eggs into the solitary basket of a single fund portfolio 


What’s so bad about investing the entirety of your retirement into 1 fund (whether it’s diversified or not)?


I came up with a few reasons.


1- No single fund could distribute enough risk to warrant a single fund portfolio


Index funds, or mutual funds for that matter, mirror some subset of the market. 


Whether that’s an individual sector (i.e. tech, energy, pharma, etc.) or the S&P 500 which tracks the market’s perceived value of the US’s top 500 companies – you’re selecting a subset of the population. 


Have we never had an entire sector take a dive and get wiped out? (See – Dot Com Bubble or the housing market during the Great Recession) 


ms KPEL8r

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And past that, the S&P as well as all other major markets, have all taken significant losses over large chunks of time within the last 40 years. 


They say, “There’s significant risk of loss” for a reason, folks. 


Does that mean that we shouldn’t be investing in the stock market at all?


Don’t be crazy, friends… Everything in moderation. 


I’m saying that your stock portfolio should represent some portion below 100% of your portfolio. 


Diversify your portfolio…


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2- You’re inherently missing out on other – potentially more profitable – investments 


The risk of loss isn’t the only risk you take when investing. 


Your money can’t be two places at once. When you tie your capital up in one place, it can’t be put to use somewhere else without becoming liquid (selling your funds). And depending on who you invest with, selling, buying, transferring, … could all cost you fees as well. 


For example, let’s say you find your golden goose of a mutual fund and plop all your hard-earned savings into this one ‘diversified’ fund. If a friend happens to open up an indoor market in your downtown (just a mile from your house) and offers you an opportunity to invest in some way – you couldn’t do both. 


Sure maybe that business opportunity would go belly up and you’d lose all your savings. But there’s also the possibility that this investment could earn you much more than the average 7% (annual expected return from the market). 


3- It’s lazy…


Don’t get me wrong – I’m all for passive income. But in my 33 years, I’ve found that it’s the things you work hardest for that tend to produce the best returns. 


Plopping 100% of your savings into a mutual or index fund and calling it ‘good’ just feels like a cop-out. 


And at this stage in my life, I’m ready to get crazy and try different things. Let my money go out in the world, explore, and then return home to let me know about the trip it had. Does it want to go back for a summer away or maybe a few years abroad? Or would it rather forget that destination ever existed? 


Either way, it’s a big world out there and I feel it’s financially prudent to explore it.


The more I think about it, the more I hate the idea of a single fund portfolio…


But guess what folks… I’ve been doing the single fund portfolio for the last 3 years!


Took me a while to come to this realization, but yeah – it’s true. You know what though? I’ve been having this feeling in the pit of my stomach for those same 3 years that I couldn’t shake. My single fund portfolio was definitely where I wanted to invest our money, but I desperately wanted to earn more money so that I could spread the wealth around a bit. And I never quite knew how to explain that feeling until I dove into this post. 


Two and a half years ago we bought a dental practice. In the time since, we’ve learned a great deal about business and relationships, felt the entrepreneurial flame and all its might, and worked to build an amazing Team and environment at our practice. 


It’s been one hell of an experience and I’ve loved most of those minutes. 


But by buying the business (our single fund portfolio), we’ve also incurred a mountain of debt, nearly had a stress-induced heart attack, and poured all of our cash reserves into this one single pot. 


Savings, loans, and even some money we didn’t know we had access to – all into the business. And taking it one step further, we hadn’t invested in our 401k’s or retirement accounts for those 2.5 years. 


So let’s compare our decision against the points I’ve made above


  • Have we successfully distributed risk? Haha – not quite
  • Have we missed out on other investment opportunities – You betcha
  • Is ours a “lazy” investment strategy? Well, I wouldn’t go that far…


Does that mean we’ve made a terrible mistake? I wouldn’t make that conclusion either.


The truth is this – we’ve made the conscious choice that this short term single fund portfolio will produce the highest likelihood of kick-ass results compared with any other option we’ve had. 


We’ve forgone investing in our 401ks and other retirement accounts, we’ve ignored other investment opportunities, and we’ve nearly gone bankrupt all with the belief that this single fund – our business – could produce the greatest return. 


And so far, the proof is in the pudding, friends 


All-in-all, here’s how that decision shakes out (these numbers are normalized because I’m not quite ready to release an actual net worth report):


Screen Shot 2019 09 13 at 12.42.00 PM


Not a bad investment for a brand new business in our first 2 years. Especially given the fact that our 10.78% increase only accounts for the asset increase and not the payouts we’ve taken during this time period. 


As we continue paying down our debt and increasing the value of the practice, this investment should pay huge dividends in the long term. 


But, to put things in perspective, the S&P 500 is up 20.76% since the date we purchased our business


Does that mean we’ve made a mistake? Nah – I’d argue that we’re playing the long game, and in 10 to 20 year’s time, the numbers will show that. 


But to reconcile my need to diversify in combination with our desire to invest in and grow our business, we’ve made a few changes recently:


  • We have established and begun investing in a 401k for our business’ employees (us and the Team). And it feels good to be actively working toward a secure retirement via multiple pathways (e.g. ‘diversification’)
  • We’ve begun to bulk up our savings account as we consider alternate forms of investment (i.e. other businesses and real estate, mostly)
  • And we’ve doubled down on making our business as successful and strong as we possibly can


So, yeah – now that I’ve done the single fund portfolio thing for multiple years, I can confirm: it may be a decent strategy in the short term. To get you where you need to go. But as a long term investment strategy – I think a single fund is both crazy and foolish.


Where do you stand on the issue?


(Photo courtesy of Dan Brooks)

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