What is portfolio diversification?

Portfolio diversification is an investment strategy that spreads holdings across different asset classes, sectors, geographies, and investment types. The goal is to reduce the risk that any single position significantly damages the overall portfolio. A diversified portfolio combines investments that may respond differently to the same economic or market event, which seeks to reduce volatility over time.

Why is diversification important in investing?

Diversification is important because no single investment, sector, or market consistently outperforms every year. By spreading risk, investors seek to reduce the impact of poor performance in any one area and create a more consistent experience across different market cycles. It's one of the most widely supported principles in long-term investment management.

How many investments should a diversified portfolio have?

There's no fixed number. What matters more than quantity is breadth — owning investments that behave differently across market conditions. A portfolio spanning multiple asset classes, geographies, sectors, and market capitalizations is generally considered well-diversified, even if the total number of holdings varies.

Can diversification eliminate risk?

No. Diversification seeks to reduce concentration risk and manage portfolio volatility, but it cannot eliminate market risk, prevent losses, or guarantee positive returns. It is designed to improve risk-adjusted outcomes — not to make investing risk-free.

How often should I rebalance my portfolio?

We generally advise that you review your allocation at least annually or whenever it drifts meaningfully from its target — often defined as a shift of five percentage points or more. Rebalancing a portfolio helps maintain your intended risk level and may be done on a calendar or threshold basis, ideally with attention to tax implications.

What are examples of diversification strategies?

Examples include investing across stocks, bonds, and cash; adding international exposure through developed and emerging markets; diversifying within equities across sectors and market capitalizations; including alternative investments where appropriate; and transitioning from a concentrated stock position into a broader portfolio over time.

Should retirees diversify differently than younger investors?

Yes. As investors approach and enter retirement, the emphasis often shifts from long-term growth to capital preservation and income generation. Sequence-of-returns risk — the impact of significant losses early in retirement — becomes more important. Investors can reduce equity exposure gradually and align their diversification strategy with their specific income needs and time horizon.

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Stocks Mutual Funds ETFs

From tax-efficient ETF portfolios and factor-based stock strategies to private credit, QSBS investing, and navigating market volatility, the choices you make across public markets can have a meaningful impact on your long-term returns and tax outcomes. At Mercer Advisors, our investment team applies an evidence-based, disciplined approach to help clients build portfolios that match their goals, risk tolerance, and tax situation. Explore the resources below for clear guidance on stocks, mutual funds, ETFs, and beyond.

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What is portfolio diversification?

Why is diversification important in investing?

How many investments should a diversified portfolio have?

Should retirees diversify differently than younger investors?

Can diversification eliminate risk?

How often should I rebalance my portfolio?

What are examples of diversification strategies?

Will Mercer Advisors’ investment strategies ever include SpaceX?

About Mercer Advisors

Explore Our Solutions

Want to learn more about Mercer Advisors?

Stocks Mutual Funds ETFs

Portfolio Diversification: How To Build a More Resilient Investment Strategy

How SpaceX’s Performance Underscores Our Caution on IPO Investing

Q3 Market Outlook: Markets, Interest Rates, Inflation, and More

Using Stock Swaps to Exercise Employee Stock Options

Your Money, Your Values: Aligning Your Portfolio with Your Priorities, Goals, and Real Life

What is portfolio diversification?

Why is diversification important in investing?

How many investments should a diversified portfolio have?

Should retirees diversify differently than younger investors?

Can diversification eliminate risk?

How often should I rebalance my portfolio?

What are examples of diversification strategies?

Will Mercer Advisors’ investment strategies ever include SpaceX?

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