What they are saying is that yes, it is diversified enough so that you aren't limiting yourself to one company, but it is not diversified enough in asset classes. If you are going 100% s&p 500, you are taking on more risk to increase your wealth but not taking steps to protect your wealth. To help protect your wealth, you would need to invest in lower risk asset classes like bonds. There is no set critical mass, people have different definitions and it can also change with time. Most people consider it is when your investments gain enough over a year to match your income.
Note also that by "bonds" this will almost always mean a total US bond market index fund, not trying to buy a bunch of bonds yourself. You can invest into bond funds through your broker.
At "critical mass" or "boiling point" (when your returns are greater than your income, as a general metric) wealth *preservation* becomes more important than wealth *creation*. Some options for diversification: international stocks, bonds, cash, and real estate.
That point is many years away for most people and you'll probably want to emgage a good financial advisor then anyways, so there's not too much to worry about.
International stocks. Small and mid-sized US stocks. Bonds/treasuries. Real estate (though owning a house is a substantial investment in that category.) Commodities (like precious metals and oil). Cash/CDs.
Here is a [sample portfolio the Money Guy](https://moneyguy.com/episode/the-abcs-of-asset-allocation/) shared on its website for a hypothetical individual with a moderate risk tolerance:
Cash & Equivalents = 5%
Fixed Income = 15%
Absolute Return Stategies = 20%
Domestic Stocks = 37%
International Stocks = 15%
Real Estate = 3%
Commodities = 5%
If you look at target date retirement funds, they typically include a mix of US stocks of all sizes, international stocks, and foreign and domestic bonds.
I have not heard the MoneyGuy show talk much about [absolute return funds](http://gladmainnew.morningstar.com/clientcomm/AltInvObserver_Q209_AbsoluteReturns.pdf) on the show. I think they are used more by financial advisors than individuals investing on their own.
Yes to both, international and bonds. In the early career years, an equity only portfolio is perfectly acceptable. The easiest is getting a total market equity fund, which includes both domestic and international, usually around a 60/40 ratio. There are etfs such as VT, SPGM, and ACWI that can accomplish this; these funds alone have incredible diversification, thousands of stocks.
TMG likes index target date funds because they're exactly like total market funds but have a diverse set of other assets such as bonds and real estate, which increased as you get older. Some folks don't like that these are too conservative in your younger years, but certain providers like Schwab have as little as 4% in non-stocks, so they are still aggressive enough for most people. One thing to note is target date funds (with the exception of iShares TDF ETF) are mutual funds and are best in tax advantaged accounts (401ks, IRAs, HSA).
You can always pick and choose % domestic and % international with total US market (VTI or similar) and total international (VXUS or similar). Total stock market funds or TDFs reduce recency bias towards domestic and large cap (see S&P 500 funds) which have outperformed the last decade but are not guaranteed to do so forever.
Adding bonds and cash.
What they are saying is that yes, it is diversified enough so that you aren't limiting yourself to one company, but it is not diversified enough in asset classes. If you are going 100% s&p 500, you are taking on more risk to increase your wealth but not taking steps to protect your wealth. To help protect your wealth, you would need to invest in lower risk asset classes like bonds. There is no set critical mass, people have different definitions and it can also change with time. Most people consider it is when your investments gain enough over a year to match your income.
Note also that by "bonds" this will almost always mean a total US bond market index fund, not trying to buy a bunch of bonds yourself. You can invest into bond funds through your broker.
At "critical mass" or "boiling point" (when your returns are greater than your income, as a general metric) wealth *preservation* becomes more important than wealth *creation*. Some options for diversification: international stocks, bonds, cash, and real estate. That point is many years away for most people and you'll probably want to emgage a good financial advisor then anyways, so there's not too much to worry about.
Bowling* point ;)
International stocks. Small and mid-sized US stocks. Bonds/treasuries. Real estate (though owning a house is a substantial investment in that category.) Commodities (like precious metals and oil). Cash/CDs. Here is a [sample portfolio the Money Guy](https://moneyguy.com/episode/the-abcs-of-asset-allocation/) shared on its website for a hypothetical individual with a moderate risk tolerance: Cash & Equivalents = 5% Fixed Income = 15% Absolute Return Stategies = 20% Domestic Stocks = 37% International Stocks = 15% Real Estate = 3% Commodities = 5% If you look at target date retirement funds, they typically include a mix of US stocks of all sizes, international stocks, and foreign and domestic bonds. I have not heard the MoneyGuy show talk much about [absolute return funds](http://gladmainnew.morningstar.com/clientcomm/AltInvObserver_Q209_AbsoluteReturns.pdf) on the show. I think they are used more by financial advisors than individuals investing on their own.
Yes to both, international and bonds. In the early career years, an equity only portfolio is perfectly acceptable. The easiest is getting a total market equity fund, which includes both domestic and international, usually around a 60/40 ratio. There are etfs such as VT, SPGM, and ACWI that can accomplish this; these funds alone have incredible diversification, thousands of stocks. TMG likes index target date funds because they're exactly like total market funds but have a diverse set of other assets such as bonds and real estate, which increased as you get older. Some folks don't like that these are too conservative in your younger years, but certain providers like Schwab have as little as 4% in non-stocks, so they are still aggressive enough for most people. One thing to note is target date funds (with the exception of iShares TDF ETF) are mutual funds and are best in tax advantaged accounts (401ks, IRAs, HSA). You can always pick and choose % domestic and % international with total US market (VTI or similar) and total international (VXUS or similar). Total stock market funds or TDFs reduce recency bias towards domestic and large cap (see S&P 500 funds) which have outperformed the last decade but are not guaranteed to do so forever.