Diversification: When the only 'free lunch' in finance makes you sick

More not always merrier

clock • 3 min read

Many people will have heard the phrase 'diversification is the only free lunch in finance' from the great Harry Markowitz’s seminal paper Portfolio Selection published in The Journal of Finance in 1952.

His insight still powers how we invest today but, while his famous phrase remains correct, we now know that diversification's free lunch can make you sick if you eat too much of it. However, more recent research such as TINSTAAFL… Not even portfolio diversification from Franklin Templeton Investments shows that if a portfolio is too diversified or clumsily constructed then clients are left with an expensive product that will fail to perform as they have been led to expect.   In fact, clients can suffer a significant silent price if their portfolio is so diversified that it cannot outp...

To continue reading this article...

Join Investment Week for free

  • Unlimited access to real-time news, analysis and opinion from the investment industry, including the Sustainable Hub covering fund news from the ESG space
  • Get ahead of regulatory and technological changes affecting fund management
  • Important and breaking news stories selected by the editors delivered straight to your inbox each day
  • Weekly members-only newsletter with exclusive opinion pieces from leading industry experts
  • Be the first to hear about our extensive events schedule and awards programmes

Join now

 

Already an Investment Week
member?

Login

Trustpilot