Portfolio Diversification Analyzer
Analyze your portfolio's diversification across sectors and asset classes. Get a diversification score and actionable recommendations to reduce risk.
Add Holdings
Your Holdings (5)
| Name | Ticker | Value | Sector | Asset Class | % | |
|---|---|---|---|---|---|---|
| Apple Inc | AAPL | $15,000 | Technology | US Large Cap | 29.4% | |
| Microsoft | MSFT | $12,000 | Technology | US Large Cap | 23.5% | |
| JP Morgan | JPM | $8,000 | Financials | US Large Cap | 15.7% | |
| Johnson & Johnson | JNJ | $6,000 | Healthcare | US Large Cap | 11.8% | |
| Vanguard Total Bond | BND | $10,000 | Cash & Equivalents | Bonds | 19.6% | |
| Total | $51,000 | 100% |
Diversification Score
Sector Allocation
Asset Class Allocation
Recommendations
- •Your largest position (29.4%) exceeds 20%. Consider trimming to reduce single-stock risk.
- •You're only invested in 4 sectors. Aim for 5+ sectors for better diversification.
- •Consider adding more asset classes. You currently have 2. Adding bonds, international, or REITs can reduce correlation.
- •Your top 5 holdings represent 100.0% of your portfolio. Consider spreading risk across more positions.
- •Technology allocation (52.9%) is high. Consider diversifying into defensive sectors like Healthcare or Consumer Staples.
- •Your portfolio lacks international exposure. Consider adding developed or emerging market funds for geographic diversification.
Why Diversification Matters
Diversification is the practice of spreading investments across different asset classes, sectors, and geographies to reduce risk. As the saying goes, "Don't put all your eggs in one basket." When one investment falls, others may rise or stay stable, smoothing out overall portfolio returns.
Reduce Risk
Spreading investments reduces the impact of any single position losing value.
Smoother Returns
Different assets perform well at different times, reducing volatility.
Peace of Mind
A well-diversified portfolio lets you sleep better at night.
Diversification Best Practices
Position Sizing
No single stock should represent more than 5-10% of your portfolio. Large positions create concentration risk—if that company has problems, your portfolio suffers disproportionately.
Sector Allocation
Aim for exposure across 5+ sectors. Technology-heavy portfolios performed well recently but suffered during the 2022 tech crash. Balance growth sectors with defensive ones.
Asset Classes
Include stocks, bonds, and potentially alternatives (REITs, commodities). Stocks and bonds often move in opposite directions, providing natural hedging.
Geographic Diversification
Don't limit yourself to US stocks. International markets provide exposure to different economic cycles and currency movements. Consider 20-40% international allocation.
Frequently Asked Questions
How many stocks do I need for diversification?▼
Research suggests 20-30 stocks across different sectors provides substantial diversification benefits. Beyond that, additional holdings have diminishing returns. For most investors, low-cost index funds or ETFs offer instant diversification with a single purchase.
What is correlation and why does it matter?▼
Correlation measures how two investments move relative to each other. Perfectly correlated assets (correlation = 1) move together, offering no diversification benefit. Negatively correlated or uncorrelated assets (-1 to 0) provide the best diversification. Stocks and bonds, for example, often have low or negative correlation.
Can you be over-diversified?▼
Yes, "diworsification" occurs when adding positions dilutes returns without meaningful risk reduction. Owning 5 tech ETFs doesn't diversify—you're just holding the same thing multiple ways. Focus on assets with genuinely different characteristics.
How often should I rebalance?▼
Rebalance annually or when allocations drift more than 5% from targets. More frequent rebalancing increases trading costs and taxes. Many advisors recommend checking quarterly and only rebalancing when necessary.