Should You Diversify Differently?

April 8, 2019
The more stocks you own, the more diversified you are, right? Not necessarily. There could be other factors—including your own built-in biases—holding you back from creating a truly diversified portfolio.

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After you listen

  • If you're looking to start investing with a diversified portfolio, Schwab's automated portfolios of low-cost ETFs can be a convenient way to do so. Learn more about robo-advice at schwab.com/automatedinvesting.
  • If you'd like to help shape the future direction of the show, please take a brief survey—available at schwab.com/survey—to have your say.
  • If you're looking to start investing with a diversified portfolio, Schwab's automated portfolios of low-cost ETFs can be a convenient way to do so. Learn more about robo-advice at schwab.com/automatedinvesting.
  • If you'd like to help shape the future direction of the show, please take a brief survey—available at schwab.com/survey—to have your say.

Two corrections for the broad market in 2018, coupled with bear markets in various segments, have many investors facing a decision: Do I have the right level of diversification in my portfolio, or do I need to make some changes? Many people simply aren't diversified as well as they should be.

In this episode, Mark Riepe breaks down the ways your cognitive biases might be preventing you from building a truly diversified portfolio. Joining Mark is Omar Aguilar from Charles Schwab Investment Management. Mark and Omar discuss how you can tell if your portfolio isn't diversified enough—and how you can change that.

  • You can read more about how diversification works in the 2008 study "Equity Portfolio Diversification" by William N. Goetzmann and Alok Kumar, which appeared in Review of Finance.
  • And Omar Aguilar further explores home country bias in investing in the article "The Comforts of Home."

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All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Correlation is a statistical measure of how two investments have historically moved in relation to each other, and ranges from -1 to +1. A correlation of 1 indicates a perfect positive correlation, while a correlation of -1 indicates a perfect negative correlation. A correlation of zero means the assets are not correlated.

Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets.

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