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Evidence-Based Investment Insights: The Full-Meal Deal of Diversification

In our last piece, “Financial Gurus and Other Fantastic Creatures,” we concluded our exploration of the impractical odds you face if you or your hired help try to outsmart the market’s price-setting efficiencies. Now, we turn our attention to the many ways you can harness these efficiencies to work for, rather than against you.

It starts with diversification as among your greatest financial friends. After all, what other single action can both dampen your exposure to a number of investment risks and strengthen your ability to achieve your personal financial goals? While the combination may seem almost magical, the benefits of diversification have been well-documented and widely explained by 70+ years of academic inquiry. Its powers have been enduring and robust.

Global Diversification: Quantity AND Quality

What is diversification? In a general sense, it is about spreading your risks around. In investing, that means it is more than just ensuring you have many holdings. It is also about having many different kinds of holdings. That is, you want to ensure that your multiple baskets contain not only many eggs, but also a bounty of fruits, vegetables, grains, meats and cheese.

While this may make intuitive sense, many investors come to us believing they are well-diversified when they are not. They may own a large number of stocks or stock funds across numerous accounts. But upon closer analysis, we find most of their holdings are concentrated in large-company U.S. stocks, or similarly narrow market exposure.

As we continue in this series, we will explore what we mean by different kinds of investments. For now, think of a concentrated portfolio as the undiversified equivalent of many basketsful of plain, white eggs. Over-exposure to what should be just one financial ingredient among many is not only unappetizing, it can be detrimental to your financial health.

Poor diversification:

1. Increases your vulnerability to avoidable risks.

2. Increases the odds for a bumpier, less reliable investment experience.

3. Makes you more susceptible to second-guessing your investment decisions.

A World Of Opportunities

Combined, these three strikes tend to generate unnecessary costs, increased investment mistakes, and, perhaps most important of all, higher anxiety. You are back to trying to beat formidable market forces instead of turning them into investment alliances. 

There is a wide world of investment opportunities available from low-cost funds offering efficient exposure to global capital markets. Why not make best use of them?

Your Take-Home

To best capture the benefits of diversification, turn to fund managers who focus their energies (and yours) on efficiently capturing diversified dimensions of global returns.

In our last piece, we described why brokers or fund managers who are instead fixated on trying to outperform the market are likely wasting your time and money. You may still be able to achieve diversification, but your experience will be weakened by pointless efforts, extraneous costs and irritating distractions. Who needs that when diversification can help you have your cake and eat it, too?

In our next installment of this series, we will explore why diversification is sometimes called one of investors’ few free lunches.


With all the uncertainty and volatility in today’s economy, the time is now to take a thorough look at your finances. To accurately plan for your financial future, you must first know where you currently stand. For these reasons, our Success Team at Impact Advisors Group is offering a free financial assessment for both individuals and business owners. Request yours today!

This post was written and first distributed by Wendy J. Cook.

Impact Advisors Group LLC (“[IAG]”) is a registered investment advisor offering advisory services in the State of Massachusetts and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site. The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Impact Advisors Group disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. IAG does not warrant that the information on this site will be free from error. Your use of the information is at your sole risk. Under no circumstances shall IAG be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided on this site, even if IAG or a IAG authorized representative has been advised of the possibility of such damages. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
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