What "diversified" actually means, with numbers

It is the commonest trap: you buy five funds at five different moments, each recommended by someone, and it feels safe because there are five. Then you look inside and find all five hold the same large technology companies in their top positions.

The number of products measures nothing. What matters is what is inside them, and whether the things inside react differently to the same event.

First, by company: how much the largest position weighs. If a single company is more than 10% of the total, the portfolio depends on one story. Second, by sector: if 60% is technology, a sector problem is a whole-portfolio problem.

Third, geography and currency — the most underestimated of the three: an all-American portfolio isn't only exposed to the American economy, it is exposed to the dollar. Those are two risks, and they arrive together.

A single global equity fund already holds thousands of companies across dozens of countries: on the equity side, that is already diversified. Adding four similar ones adds no protection — it adds cost and the feeling of having done something.

The diversification that is usually missing isn't within equities: it is between different things — shares and bonds, which react differently to the same events. That is where stability actually comes from, not from a sixth equity fund.