Why retail investors shouldn’t overdiversify
With time and effort, you can do better by focusing your portfolio on 10 stocks
✒ By diversifying across a broad range of assets an investor can reduce both risk and volatility. However, everything in life is a trade: reduced volatility means that while downside is protected, upside is diluted.
The author argues that for retail investors, investing in 10 well-researched and uncorrelated stocks is well diversified and allows a chance for growth.
Once you go over 20 stocks, you start to correlate your holdings significantly with the index that you are trying to beat. Therefore, if your main goal is to diversify, buy an index fund, the fees are cheaper and it is easier.