Think You’re Diversified? Think Again
The Myth of More Tickers
A lot of people look at their investment portfolio and think:
“More tickers means I’m diversified… right?”
And while your first thought might be “yeah, of course, I own more stuff,” that’s not always the case. Many ETFs own the exact same companies. And many of the most popular ETFs all hold essentially the same top stocks! So if you just go out and buy what’s trending, you might be buying the same thing multiple times, which doesn’t reduce your risk at all.
The ETF Overlap Problem
Take a look under the hood of the S&P 500 ETF (VOO), a “total stock market” ETF (VTI), and a NASDAQ ETF (QQQ). What do they all share? Apple, Microsoft, Amazon, Nvidia, and a handful of other giants. Sure, the weightings might be different, but you’re not really getting unique exposure, you’re just doubling and tripling down on the same companies.
The False Sense of Security
This is where investors get lulled into a false sense of security. On paper, your account might show five or six different ETFs, looks diversified! But if all of them lean on the same top 10 companies, you’re not actually spreading your risk.
In fact, this overlap can create concentration risk. If one of those mega-cap stocks takes a major hit, your whole portfolio feels it, even though you thought you had “diversified” away that risk.
Why Diversification Actually Matters
Here’s the thing: sectors don’t all move together forever. History shows that certain sectors and styles (like large-cap growth, small-cap value, or international equities) can lag for a decade or more before the tides turn.
For example, U.S. large-cap growth dominated the 2010s. But go back to the early 2000s, and international and small-cap stocks crushed it while tech struggled. Diversification is what helps smooth out those long cycles so you’re not left stranded holding only the underperformer.
What Real Diversification Looks Like
True diversification isn’t just “more ETFs.” It’s spreading your money across different types of investments. That could mean:
U.S. equities split into large-cap, mid-cap, and small-cap
International equities to capture global growth
REITs (real estate investment trusts) to add real estate exposure without buying buildings
Bonds or fixed income to provide stability when stocks get volatile
Alternatives (in moderation) to hedge unique risks
That’s how you build a portfolio that can weather different markets.
How to Check Your Own Diversification
Don’t just assume your ETFs are different, check them. Most brokerages (and free sites like ETF Research Center’s “overlap tool”) let you see the top holdings of any ETF. If you keep seeing the same companies pop up, it’s time to rethink whether you’re actually diversified or just collecting tickers.
Closing Thought
Owning more ETFs doesn’t guarantee safety. Real diversification takes intentional design. It’s about lowering your overall risk while still capturing growth, not just stacking ticker symbols.
If you’re not sure whether your portfolio is truly diversified, that’s exactly the kind of analysis I do with clients. Sometimes the difference between “looks diversified” and is diversified can mean everything when markets flip.
