How diversified is my investment portfolio? Five questions to ask yourself

Why diversification matters

No single company, country or type of investment always does well. When your money is spread across different investments, some partly absorb the blows of others. Diversification does not remove risk, but it prevents one setback from hitting a large part of your wealth.

Question 1: how much is in your largest investment?

Check what share of your total wealth sits in your largest single investment. If a large part is in one stock, for example your employer's, your result depends heavily on that one company. A broad ETF is different: it already holds hundreds of companies.

Question 2: do you have different types of investments?

Stocks, bonds, savings, property, gold and crypto behave differently. Stocks can return a lot over the long term but swing sharply. Bonds and savings are usually calmer. A mix that suits your situation makes the swings easier to bear.

Question 3: how are you spread across countries and currencies?

Many investors hold a lot in their home country because it feels familiar. Others, through global funds, are mostly in the United States. Both can be fine, as long as you know it. Watch currencies too: investments in dollars move with the exchange rate.

Question 4: does your portfolio lean on one sector?

In recent years, the world's largest companies have mostly been tech companies. As a result, many portfolios, even with broad funds, hold a large share in technology. Check whether that is a deliberate choice.

Question 5: does the mix fit your goal and time horizon?

If you need the money in two years, for example for a house, a big fall just before then is a real problem. If you invest for twenty years, you have more time to recover from a dip. Your diversification should match when you need the money.

Common mistakes

• Buying many funds that all hold the same things. See also our guide on ETF overlap.
• Forgetting to count savings, pension or your own home in your overall split.
• Only looking at diversification when markets fall, instead of beforehand.