Many people will have heard the phrase 'diversification is the only free lunch in finance' from the great Harry Markowitz’s seminal paper Portfolio Selection published in The Journal of Finance in 1952.
His insight still powers how we invest today but, while his famous phrase remains correct, we now know that diversification's free lunch can make you sick if you eat too much of it. However, more recent research such as TINSTAAFL… Not even portfolio diversification from Franklin Templeton Investments shows that if a portfolio is too diversified or clumsily constructed then clients are left with an expensive product that will fail to perform as they have been led to expect. In fact, clients can suffer a significant silent price if their portfolio is so diversified that it cannot outp...
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