I’m not sure if I’m understanding your point–sorry–but to paraphrase the blog post a bit, index funds give high income high net worth investors a way to easily scale up, to more easily deal with succession and to cleanly systematize their portfolio.

This stuff doesn’t matter that much when you’re talking average investor. But if the dollars get big, scalability, succession and systemization do matter.

I would not describe MF Global as big or blue-chip.

That said, and to your point, John Corazine (the former Goldman Sachs CEO and former US Senator running MF Global) was certainly not a Bernie Madoff clone.

Regarding your third point, you wouldn’t live off just your dividend or even bonds. Many investors now realize that they can live off total return. You ‘manufacture dividends’ by selling long term shares to supplement your dividend yields. This enables you to get the cash flow you need, and possibly at a lower long term capital gain rate.

Your question seems to be coming from the “don’t put all your eggs in one basket” mantra. Some investors let that confuse them. You could spread you assets over 10 custodians. But if they are all in one stock, say Apple, or one category, such as small cap, you would be closer to putting ” all your eggs in one basket” than if you were properly diversified at one major custodian. Even if Vanguard went down, chances are your money wouldn’t be gone. The assets are yours, not Vanguards. If Vanguard were public and you could buy their stock, then you would have problems if they “went down”.

When I read your heading, I thought the main point of the article would be about the tax efficiency. Probably the biggest point because tax planning and simplicity two major things affluent investors want.

@Brandon – I think the risk of even the biggest, blue-est chip providers like Vanguard failing is very real. I had a bad experience with MF Global, for instance (run by the former head of Goldman Sachs, after all – more fool me). I’ve written about the risks I worry about, and what I do about them, at http://firevlondon.com/2015/05/27/whats-the-worst-that-can-happen/

Sparky, Fair enough! And thanks for your perspective.

Thanks for the reply Steve.

I wasn’t suggesting that what you articulated doesn’t make sense, I just think it would be worthwhile for people to appreciate the downside as well as the upside. I use index funds/ETF’s to diversify into areas I don’t understand well, such as small cap and international so, I appreciate the argument you make.

Sparky…-

I agree with you that no one approach fits everyone (e.g, see last paragraphs of post)… No argument there.

Where we disagree, obviously, is that I think passive investing makes more sense for most people… and then that passive investing makes “more” more sense for a wealthy or high income person.

Not one approach fits all investor profiles.