I often hear people say that all you really need for a Stocks and Shares ISA or a pension account is a low-cost global index fund. The argument is that this kind of fund automatically diversifies your portfolio across thousands of companies while simultaneously eliminating stock-picking risk and keeping expenses low.

But is a global index fund truly all that’s needed to have financial success? Let’s discuss.

Brilliant products

Global index funds are brilliant products. And for a young investor that doesn’t want to spend time analysing investments, they could potentially be a one-stop shop, in my view.

However, as we get older, our financial needs change. And this where a strategy of only owning a global tracker fund comes up a bit short.

Managing risk

As an example, the older I get, the more I want to lower my overall portfolio risk levels. This means not having all my money in the market.

So instead of having all my ISA and Self-Invested Personal Pension (SIPP) capital in stock market-based investments, I’ll keep a certain proportion of my money in low-risk investments like money market funds and bonds.

Right now, about 30% of my portfolio is invested in these low-risk investments. So my portfolio’s far less risky than one that is 100% allocated to a global index fund.

Meanwhile, I have plenty of optionality. If markets tank, I can take some of the capital in the low-risk section of my portfolio and buy stocks at low prices.

Building a balanced portfolio

As I get older, I also want to strive to build a really balanced portfolio. Global index funds have their flaws here because they’re about 65% focused on the US market these days.

Within my portfolio, I’ve added funds focused specifically on areas such as Europe, the UK, healthcare, and defence. These kinds of funds have made my portfolio far more balanced, meaning that my overall risk levels are lower.

Aiming for higher returns

I also like the idea of generating explosive returns. So I’ve got exposure to individual stocks as with these investments, it’s possible to achieve far higher returns than those on offer from global index funds.

As an example here, I invested in Google owner Alphabet (NASDAQ: GOOG) back in late 2019 when its share price was around $65. Today, its share price is around $340, meaning that I’ve made a 420% return from the stock (which is more than 30% a year on average).

I’ll point out that I don’t plan to sell the stock any time soon, because I reckon Alphabet can get much bigger in the years ahead.

Today, this company is far more than just an online search platform operator. With revenues coming from cloud computing, AI, chips, video streaming (YouTube), self-driving cars, it’s a diversified technology powerhouse.

As for its valuation, it seems quite reasonable to me. Looking at analysts’ earnings forecasts for this year, the forward-looking price-to-earnings (P/E) ratio is only 17. At that valuation, I think the stock’s capable of providing attractive returns in the years ahead. Note that the average analyst 12-month price target is $422.

Of course, there are no guarantees the stock will perform well. If the company’s growth stalls, or its profits drop, the share price could fall.

However, this is a business with a phenomenal track record. In my view, it’s worth a closer look.

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Edward Sheldon owns shares in Alphabet.