When Portfolio Diversification is Not a Good Idea

Diversification is widely considered to be the byword for sensible investing - protecting investors from losses. But as you become more knowledgable it matters less

Samuel Lee, ETF Analyst 30 July, 2014 | 1:30PM
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Diversification is often treated as an unalloyed good. It's not. The more I learn, the more I appreciate that Warren Buffett said something as perfect as can be about the subject: "Diversification is protection against ignorance."

Most investors should own diversified, low-cost funds

Diversification is a volatility-control strategy that requires little knowledge on your part. As long as 1) two assets aren't perfectly correlated and 2) the expected return on one of the assets isn't too low, it follows as a matter of math that owning a combination of the two can be expected – not guaranteed – to provide a better volatility-adjusted pay-off than owning only one.

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Samuel Lee, ETF Analyst  -

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