How to diversify your portfolio to protect yourself from market risks? (20/20)

I think that the efficient markets theory has some truth in it. Maybe it's just a question of timing. Yes, the market is efficient, but in the long term. In the short and medium term, it is parasitized by crowd psychology and by fashionable investment strategies.

ETFs are not all bad. Typically, they can be very useful for a beginner investor who wants to get to know the stock market and who does not have enough means to diversify his portfolio. In the same vein, they perfectly fulfill their role in a larger portfolio to take minority positions on a market segment. They therefore allow you to have good diversification without too much hassle, even with relatively modest amounts.

I remain convinced that in a large portfolio, someone who likes to take calculated risks and who knows how to choose their securities based on the intrinsic criteria of the company, the market and their own personality can do better than following the indices.

One last point about ETFs. Be aware that most of them lend the securities they manage to other institutions to enable short selling. It has even become a huge business and that is why their management fees are so low. That being said, all this is not without risks. If the borrower is no longer able to honor his debt, it can hurt... Some do not even hesitate to say that securities lending represents the next subprimes. Blackrock, which is behind ishares, has very strong financial backing, but you must nevertheless be aware of this risk. So, as already said above, ETFs are good for constituting a minority portfolio position, but you should avoid using them only. Ultimately, they should be considered as an asset class in their own right and that it is therefore necessary to diversify with other types of investments.

This concludes this long series of articles. Thank you for your loyalty.

Sources:

http://independenttrader.org/permanent-portfolio-models-and-their-long-term-roi.html
https://www.portfoliovisualizer.com/backtest-portfolio
http://mebfaber.com/2015/06/01/chapter-8-the-marc-faber-portfolio/
https://extradash.com/en/strategies/models/5/faber-tactical-asset-allocation/