Why are particulars important in a portfolio so long as it is market diversified (say index funds) with a reasonable equity/fixed split (say 60/40)?
Taken by analogy of what Warren Buffet recently said, that "it doesn't much matter who is president."
The important particulars in reference to index oriented investing have most to do with the definition of the market and the thousands of ways in which you can own it. The question then becomes which ways make the most sense?
Owning a globally diversified portfolio including US markets, International Markets, Emerging Markets and Alternatives is logical. However, the amount of exposure to each will be a large determinant of future performance and volatility. Particulars like the amount of small cap vs. large cap, value vs. growth, fund expenses and the importance of rebalancing of your portfolio all come into play. Hope this helps.
How different is a value meal from a fast food restaurant versus one prepared by a personal chef?
For example, you had many 60/40 portfolios that were investing only in the S&P 500. There was the "lost decade" in the S&P 500 recently, whereas other stock indices doubled during the same time period.
Likewise, I find many managed portfolio take excessive bond risk. During 2008, several mutual funds closed because they lost significant amounts in risky bonds.
If you are underdiversified, taking risk that isn't rewarded, hiring managers who gamble, etc., you will have significantly different results. I think it starts with having a philosophy of what you are trying to do, what your philosophy on investing is, and understanding characteristics of markets to tie them to your goals and objectives.
Thanks for this excellent question! I do like that you mention index funds within your question because these are an excellent mechanism to obtain great diversification at a low cost.
There are MANY reasons why the particulars matter. Here are 3 that are among the more important:
1) For most investors, further diversification into hard assets such as real estate, commodities and precious metals are recommended. These types of assets can do well when stocks are out of favor and improve long-term returns.
2) The type of fixed or bond investing you should do is very contingent upon both current interest rates as well as the direction they are moving (up or down). Active management of this portion of your portfolio is important, particularly as interest rates are likely to climb over the next few years.
3) Within the equity portion, historical returns indicate that certain factors drive superior performance over long (15+ year) time frames. Using an index fund that tracks only the S&P 500 will do reasonably well over the long-term; however, you're likely leaving some money on the table if history repeats and these factors continue to drive superior long-term performance.
I hope you found this information helpful - good luck with your investment allocation decisions!
With Kind Regards,