Is it possible to over-diversify my portfolio?

I've always made an effort to diversify my portfolio to achieve long term growth and protect myself from losing money. However, I am wondering if there is such a thing as over-diversification of my portfolio. What is a sign that I am, in fact, over-diversified? Would over-diversifying between ETFs, mutual funds, and stocks hurt my invest goals and the value of my of portfolio in any way, and if so, how?

Investing, Asset Allocation
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February 2017
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Hi!

Yes, it may. It is probably less dangerous than being under-diversified, but too many investments can have too many fees and probably more importantly, too tough to manage. When I coordinate all of my client's assets, I see how they work historically together, meaning their risk and return profile, liquidity, and taxes. An asset in one account may go up when another goes down. I look at how they performed when things got tough, like 2009. I then add in my view as if they will look like that in the future.

This can still be done with a lot of different assets, but it is more difficult.

The other thing to consider is overlap. Do they both have the same assets? If they do, you might not be as diversified as you think.

Take a close look at your investments. If you have the interest, this is certainly something you can do yourself. You could also hire an hourly planner with better software to take a close look. Many of us can be found at www.NAPFA.org.

Keep asking questions. Inquisitive people like you have a greater chance of building wealth!

Good Luck!

Mark Struthers CFA, CFP®

February 2017
February 2017
February 2017
February 2017