Diversification is all well and good but it depends how far you take it. There’s no point investing in a dud just because it aids diversification. It’s been shown that a single fund only needs around 30 separate holdings in order to reduce volatility to an acceptable level, yet most funds have well over 100 – how does the manager keep track of all these positions? Then there’s diversification between sectors: US vs UK vs EUR vs Japan, blue chip vs mid-cap vs smaller co.s, value vs quality, miners vs banks vs pharma, etc. And there’s different types of investments: equities, bonds (govt vs corporate), etc. e.g. why would you “diversify” into UK govt bonds when yields are at an all-time low? Surely that can only go one way in the long term?
I’m also struggling to find homes for my SIPP, QE has flooded the markets with liquidity and consequently almost everything looks toppy. I try to follow the teachings of Warren Buffett, his annual letter to shareholders contains more good sense than you’ll find in all the guff produced by the financial press. Terry Smith is another reliable source of good sense.
