The ways a portfolio can be spread
Diversification is not one number. It can be looked at along several lines, and a portfolio can be well spread on one and narrow on another.
- Companies: how many, and how evenly your money is divided between them
- Sectors: technology, financials, healthcare and so on
- Regions: the UK, the US, Europe, emerging markets and elsewhere
- Asset types: shares, bonds, cash and other assets
- Currency: assets priced in other currencies change in pound value when exchange rates move
Why counting funds does not show the spread
Owning five funds does not mean owning five different things. If several of them hold the same large companies, your money is more concentrated than the number of funds suggests. Looking through to the underlying holdings, rather than counting funds, shows how spread out you really are.
A UK angle
UK investors often hold funds inside an ISA, a pension or a general investment account. The wrapper changes tax treatment, not what the funds own, so the same funds held in different accounts still add up to one set of exposures. Many UK investors also hold some of their money in UK companies and the rest overseas, which brings currency into the picture: overseas assets move in pound terms when exchange rates move, unless the fund hedges that effect.
What this guide does not do
How spread out a portfolio should be depends on your goals, your timescale and how much risk you can take, which differ from person to person. Ownsight describes what you hold. It does not give personal advice. For personal advice, MoneyHelper (moneyhelper.org.uk) can help you find an adviser, and the FCA register (register.fca.org.uk) lets you check that a firm is authorised.
Questions
- Does diversification remove risk?
- No. It spreads exposure across more things, so that no single one dominates. A diversified portfolio can still fall in value.
- How many funds do I need to be diversified?
- There is no number that works for everyone. What matters is what the funds hold underneath, which look-through shows.
- Does Ownsight say whether my portfolio is diversified enough?
- No. It shows how your holdings are spread across companies, sectors, regions and asset types, and what is close to zero. That is a description of what you hold, not advice.
Try it on your own holdings
Add what you hold and see the companies, overlap, concentration and charges behind it. Ownsight never connects to your broker or bank.
See how your portfolio is spread