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February 01, 2012


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I agree with you and firmly believe that as an investor no one should put all the eggs in a basket. Diversification is the only way to decrease volatility and risk while sustaining the equilibrium of the return.

Since Lehman's bankruptcy I worry about two features of most ETFs (and more generally investment funds): Swaps and securities lending. Do Vanguard ETFs make use of these financial innovations?

If so, I'd stay from them. Given the stress that the global financial system is undergoing these days, I'd like to avoid any counterparty risk. The probability of some big financial institutions (i.e. counterparties) going bust is just too high right now. Countries like Italy and Spain are unable to to bailout their big banks if they need to. But some of them are actually systemically important.

I struggle to stick with a central direction for the diversification of my mutual funds. Sometimes I like Large Cap, sometimes its value, and sometimes its Mid to Small Cap. I also tend to keep a lot of international funds. That went over really well with the crisis that's been going on in Europe. I guess the silver lining is that I'm buying stocks on sale!

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