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If your assets are huge (however you define that), it always makes sense to diversify some, but anything can be carried to excess of course!

In the first place, there are limits on the amounts of insurance, for example I think it is $500,000 for brokerage accounts. We all should have that problem, but you may not (yet).

If I had a large amount of retirement funds (say, $1 million), I would probably have roughly half in a internet brokerage account such as Scottrade, and half in a direct investment with a mutual fund Co. such as Vanguard.

If you were filthy rich, you would probably be well advised to have some, perhaps most, of your money outside the United States. Chances are people that rich don't, or don't need to, read TMF.

The point is to diversify your risks. The chances of a Katrina or other disaster are small, but they happen. Vanguard (probably) is a sound company, but having half your assets with Fidelity or Schwab helps insure that you could access some of your assets if Vanguard's computers go out to lunch one day.
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