Chris Dillow 

Why we over-diversify

Chris Dillow

Chris Dillow
Why we over-diversify

Many investors diversify too much – for perhaps surprising reasons. To see why, think about what happens when you add assets to your portfolio. As you do so, you reduce the contribution any single asset makes to your total returns. But you increase the importance of correlations between assets. If you had an infinite number of assets each would make an infinitesimally small contribution and your returns would depend only upon the covariances between them.

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