Your investments may not be as diversified as you think

Your portfolio may not be as diverse as you think. Diversification is an important tool for reducing the effects of long-term volatility while maintaining long-term goals, but your portfolio can be inadvertently concentrated.

One of the main ways this happens is when you own an individual stock that is also a large component of a mutual or exchange-traded fund. Apple, for example, has been a major driver of the S&P 500’s performance for several years. Today it accounts for about 7% of the S&P’s weighting. Microsoft isn’t far behind at around 6%, followed by the combined share classes of Alphabet (aka Google) and Amazon, both in the 4% range.

Just by owning these four companies you could own a fifth of the S&P. So if you own an index fund that tracks the S&P or another fund with these stocks, you’ll own more of these stocks than you might think.

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