Are Index Funds Over-Diversified?

Every now and then I hear the comment that index funds result in over-diversification. The thinking goes that instead of buying all of the companies in an index, you might be able to focus on a smaller subset that you believe will perform better than the market.

It makes sense. Of course you can’t beat the market by holding it. The problem is that decreasing diversification leads to a wider range of possible outcomes, with a disproportionately large probability of a negative outcome, relative to the market.

Referenced in this video:
Some Tough Love About Dividend Investing - https://www.pwlcapital.com/some-tough-love-about-dividend-investing/
Why Indexing Works - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2673262

Catch up on our latest investing advice, insights and white papers here.
https://www.pwlcapital.com/teams/passmore-felix/?utm_source=youtube&utm_medium=copy&utm_campaign=ben2019&utm_content=overdiversified

------------------
Follow me on
- Twitter: https://twitter.com/benjaminwfelix
- LinkedIn: https://www.linkedin.com/in/benjaminwfelix/

Visit PWL Capital: https://www.pwlcapital.com/teams/passmore-felix/
PWL Capital Blog Post: https://www.pwlcapital.com/can-your-index-investments-be-too-diversified/

Follow PWL Capital on:
- Twitter: https://twitter.com/PWLCapital
- Facebook: https://www.facebook.com/PWLCapital
- LinkedIn: https://www.linkedin.com/company/pwl-capital/

You can find the Rational Reminder podcast on
Google Podcasts:
https://www.google.com/podcasts?feed=aHR0cHM6Ly9yYXRpb25hbHJlbWluZGVyLmxpYnN5bi5jb20vcnNz
Apple Podcasts:
https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582?mt=2
Spotify Podcasts:
https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=hjZNfLKuSjSeWX38GPqhVA
------------------