Why most retail portfolios are less diversified than they look

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Most investors with a spread of funds and stocks across their portfolio would consider themselves reasonably diversified. And on the surface, the evidence seems to support that view - different funds, different geographies, different sectors, all sitting alongside each other.

The problem is that diversification isn't measured by what you own. It's measured by how those assets behave when conditions change.

And for most retail portfolios, the honest answer is: more similarly than most people realise.

The illusion of spread

Take a common retail portfolio: a global index fund, a US technology ETF, and a handful of individual stocks in companies the investor knows well. To most people, that looks like diversification. In practice, there may be three overlapping bets on the same group of companies.