(MoneyWatch) The fact that so many investors fail to diversify properly is distressing given that changes in the stock markets have made diversification more important than ever. Indeed, the meaning of diversification has changed significantly in recent decades.
In December 1968, for instance, an important study concluded that investors need to construct a portfolio containing as few as 15 randomly selected stocks before the benefits of diversification (as measured by standard deviation) were basically exhausted. Related research from the same era found that 90 percent of the diversification benefit came from just 16 stocks, and 95 percent of the benefit could be captured by just 30 stocks.
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