episode: 6

Investment Pitfall #4: Failing to Diversify Properly

July 9, 2020

listen now

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:

Meet your hosts

Keith Matthews

Partner & Portfolio Manager

Ruben Antoine

Portfolio Manager

Marcelo Taboada

Associate Portfolio Manager

Thanks for Listening!

Be sure to subscribe on Apple, Google, Spotify, or wherever you get your podcasts. And feel free to drop us a line at lawrence@tma-invest.com or 514-695-0096 ext.112

Follow Tulett, Matthews & Associates on social media on LinkedIn, Facebook, and more!

Follow The Empowered Investor on Facebook, LinkedIn, and Instagram

Dive Deeper: Related Episodes

17 Lessons for Canadian Investors with Nicolas Bérubé

Market myths, dividend traps, wartime volatility, and the psychology of spending in retirement — Nicolas Bérubé breaks down his lessons for building lasting wealth as a Canadian investor.

Staying the Course: Investing Through War & Uncertainty

How should Canadian investors respond to the Middle East conflict and rising oil prices? We break down market performance, the history of military conflicts, and why staying the course is the strategy that always wins.

Should I Buy Gold? Returns, Risks & Portfolio Strategy

Gold prices are soaring, but does it deserve a spot in your portfolio? We compare gold’s long-term performance and inflation protection against stocks, bonds, and real estate, examine the hidden costs of non-productive assets, and reveal why many Canadian investors already own more gold than they realize.