Investing Strategy
Diversification Mistakes That Hurt Long-Term Returns
Diversification is not just owning many funds. True diversification means balancing different risk drivers across asset classes and regions.
Frequent diversification errors
- Owning multiple funds with the same underlying holdings.
- Overconcentration in a single sector or employer stock.
- Ignoring bond diversification and duration risk.
What effective diversification looks like
- Mixes exposures with distinct return patterns.
- Aligns with timeline and liquidity needs.
- Maintains risk level you can hold through drawdowns.
Practical move: More holdings does not always mean more diversification. Look through to the underlying exposures.
Portfolio audit process
- Map current holdings by asset class and sector.
- Identify overlapping positions and concentration points.
- Adjust allocation to improve true diversification.