A lot of investors are kidding themselves if they think their stock market holdings are diversified.
Sure, you may hold lots of companies and sectors through your direct stock holdings or funds. But what about mixing large, medium and small-size companies?
This is where a lot of investors fall down on diversification. They naturally gravitate to bigger companies because those are the ones that fill out widely followed benchmark stock indexes like the S&P/TSX composite and S&P 500. These are the indexes tracked by many exchange-traded funds and emulated to some extent by mutual fund managers. Unless you own a fund focusing on small– and medium-capitalization companies, you’re missing on an important piece of the overall market.