DIVERSIFICATION MYTHS: THE MULTIVITAMIN LESSON FOR MULTI-ASSET INVESTORS

A friend of mine recently shared something that made me smile— and think.

- SAURABH MITTAL

He was prescribed magnesium for persistent cramps but chose to take a multivitamin he already had at home. “It has magnesium,” he said. It did—just 4% of the daily requirement. A week later, nothing changed.

A familiar mistake investors make with multi-asset funds: assuming that presence equals protection. But like the multivitamin pill with a trace of magnesium, the actual impact on the portfolio might be too small to matter. Let's break this down.

Consider a multi-asset fund that holds equity, debt, and gold with allocations of 65%, 25%, and 10%, respectively. On paper, this seems well-diversified. You invest a significant 20% of your total portfolio in this fund. But that means your actual gold exposure is just 2% (10% of 20%). That 2% holding in gold, often seen as a portfolio hedge or risk diversifier, doesn’t offer any meaningful cushion during periods of market stress. You may own gold, but it presence is nowhere close to being an effective strategic allocation. This is where many investors go wrong: by confusing presence with proportion.