Diversification is one of the most repeated pieces of investment advice, and for good reason. But here’s the part that rarely gets mentioned: too much diversification can actually hold you back. Instead of boosting performance or reducing risk, overdoing it can lead to a bloated portfolio that’s confusing, inefficient, and ultimately less effective.
The Problem with Overdoing It
The goal of diversification is to spread risk, but there’s a line where spreading turns into stretching. It happens when investors keep adding funds or holdings without realising they’re often duplicating exposure.
For example, you might hold five different UK equity funds that all own the same top 10 companies. On paper, it looks diversified. In reality, it’s just more of the same.
Then there’s the performance drag.
With too many holdings, your standout performers risk being diluted by average or lagging ones. This means your winners can’t shine, and your overall growth becomes sluggish. It also adds layers of complexity from tracking fees and overlaps to making rebalancing decisions that feel more like guesswork than strategy.
Real-World Example: Meet Dan
Dan is 53. He’s been investing for years, has built up a healthy portfolio, and considers himself fairly savvy.
But when he sat down for a portfolio review, it turned out he held over 30 separate funds, many of which overlapped in sector and region.
Eighteen of them focused on UK large-cap companies. He thought he was playing it safe.
What Dan really had was a portfolio that was hard to manage and expensive to maintain. His fees were quietly eating into his returns, and despite all that diversification, his performance lagged behind what he might have achieved with a simple, low-cost core approach.
Studies like the SPIVA report show that many active funds underperform their benchmarks over time, particularly in well-covered markets like the UK and US. While active strategies can still add value in niche areas, layering too many together often just adds cost and confusion.
Over time, portfolios grow messy, a bit of DIY here, a hot tip there, until it stops looking like a plan and starts feeling like a pile.
How to Streamline Smarter
Simplifying your investments doesn’t mean taking on more risk. In fact, the right kind of streamlining can improve performance, lower costs, and give you more clarity and control.
Here’s how to approach it:
- Spot the overlap
Review your holdings to check for funds that invest in the same regions, sectors, or top companies. If they’re doing the same job, consolidate. - Use a core-satellite strategy
Build your portfolio around one diversified “core” fund, then add a few “satellites” for targeted exposure (like global tech or emerging markets). - Minimise fund clutter
Aim for focus, not volume. A handful of well-chosen funds often outperform a crowded mix. - Lean on expertise
Consider model portfolios or adviser-led strategies designed to reduce duplication, keep fees low, and stay aligned to your goals.
Call to Action
You don’t need more investments; you need the right ones. If your portfolio feels complicated, bloated, or just unclear, we can help.
Book a review with Cedar House Financial and let’s cut through the noise together.
📞 Call us on 020 8366 4400
📧 Or email enquiries@cedarhfs.co.uk to get started.