Investment Pitfall #4: Failing to Diversify Properly

About This Episode

What does it mean to properly diversify an investment portfolio? And why is it so hard for many investors to maintain that proper diversification over long periods?

Diversification has become one of those topics everyone talks about, but many investors still aren’t confident that they have good levels of diversification. That’s a big problem since one of the greatest pitfalls of investing is not diversifying properly.

Having a properly diversified portfolio is the best defense against the unexpected events that inevitably affect the financial markets. With the pieces in your portfolio fitting together well, like a puzzle, you significantly reduce your risk.

On this episode, Keith and Marcelo talk about why diversification is important, what proper diversification looks like, common examples of under- and over-diversification, the consequences of not diversifying properly, and more!

Be sure to join us for our next episode where we’re going to introduce the dos and don’ts of financial planning. Thank you for listening!

Key Topics:

• Spotify’s latest milestone (1:35)
• Common investment mistakes (2:41)
• What it means to become an empowered investor (3:11)
• Why diversification is important (4:43)
• How we apply the concept of diversification outside of investing (6:00)
• The evolution of opportunities available to Canadian investors in recent decades (6:58)
• What proper diversification looks like in your investment portfolio (8:26)
• Examples of under-diversified portfolios from the early 2000s (11:27)
• Marcelo’s memorable experience with an under-diversified portfolio (14:16)
• How over-diversification looks in your portfolio (15:48)
• The main problem with over-diversification (16:32)
• Why investors get in trouble with diversification (17:12)
• What is a black swan from an investment perspective? (19:10)
• Why 9/11 is considered a black swan event (20:16)
• Is COVID-19 a black swan event? (21:54)
• The connection between diversification and black swans (22:48)
• The double negative impact of not diversifying properly (23:39)
• A simple way to think about diversification (24:54)
• And much more!

Mentioned in this Episode:

• Nassim Nicholas Taleb’s Book | The Black Swan: Second Edition: The Impact of the Highly Improbable
• Bill Gates’ TED Talk | The next outbreak? We’re not ready
• Tulett, Matthews & Associates
• Keith Matthews’ Book | The Empowered Investor: A Guide to Building Better Portfolios