Beyond the Numbers: Why Less Can Be More for Your Diversified Portfolio

Recently, I came across a 1996 article titled "Spreading the Wealth" by Jon Newberry. It explained diversification's math with a clarity often missing today.

- Dhirendra Kumar

Despite advances like AI trading and global markets, the basics of investing haven't changed. Many investors say their portfolios are "well-diversified," but often it's just a long list of stocks or funds that adds complexity without real protection. For example, one investor held 40 stocks, but five accounted for over 60% of the portfolio's value. The rest added paperwork and stress without impact.

This raises a key question: what is diversification really meant to do? Its core purpose is to protect against major losses. As Philip Fisher noted in 1958, "too many eggs in so many baskets" means many eggs don't end up in good baskets. Diversification, in fact, is smart risk management, not just quantity.