Know Your Why When You Diversify: Smart Diversification Starts With a Plan
Executive Summary
Diversification is often treated like a numbers game—the thought is, if you add more holdings and mix up the sectors, you’ll be covered. But the truth is, more positions don’t automatically mean more protection.
Real diversification is about purpose, not volume. If you don’t know why each investment is in your portfolio or how it serves your plan, you’re not managing risk—you’re just collecting clutter. When you understand your diversification strategy and align it with your needs, timeline, and goals, you build not just a stronger portfolio—but one you can actually trust.
Want to watch an in-depth exploration of this topic? Check out this video on my YouTube channel, @savvysteward: Know Your Why When You Diversify: Smart Diversification Starts With a Plan
Know Your Why When You Diversify: Smart Diversification Starts With a Plan
Most people understand the basic idea of diversification—don’t bet everything on one outcome. Spread your investments. Avoid putting all your eggs in one basket. On the surface, that’s solid advice.
But too many investors confuse variety with strategy. They pick a bunch of funds, add different sectors, maybe throw in some international exposure—and assume the job is done.
Without understanding what each piece is doing—or how it fits into their broader financial picture—you’re not managing risk. You’re just staying busy.
What is the difference between real diversification and just owning a lot of investments?
Over the years, I’ve worked with plenty of investors who come in with highly layered portfolios. Dozens of positions. Multiple firms. Different strategies. But when I ask what purpose each holding serves, I’m sometimes met with a shrug.
They’ve packed their investment portfolio like someone who overpacks a suitcase—prepared for everything, but with no idea what the trip actually calls for.
That becomes a problem when the market gets volatile. In times of stress, these portfolios offer no reassurance—because the investor doesn’t really believe in them. And when you don’t believe in your portfolio, you won’t stick with it.
That’s the gap between activity and clarity. And in financial planning, clarity always wins.
Why is it important to understand what each investment is doing in your portfolio?
A portfolio isn’t diversified just because it has a lot of parts. If all your holdings react the same way to market changes—or if they’re chasing the same type of return—you haven’t reduced risk. You’ve just increased complexity.
A truly diversified portfolio needs purpose-built components. You want to know which investments are there for growth. Which ones are built for income. Which offer liquidity. Which help you adjust when life changes.
If you don’t understand what you own, it’s tough to trust your plan when pressure builds.
How does your timeline influence smart diversification strategy?
Time is a crucial part of diversification. You’re not just diversifying what you invest in—you’re diversifying when you’ll need it.
Some dollars might be needed soon: for travel, large purchases, or helping family. Others are meant for retirement or legacy goals, years down the line.
That timing changes the risk. Short-term money shouldn’t be in unpredictable assets. Long-term money shouldn’t sit in cash, eroding against inflation.
When your investments are matched to your timeline, it becomes easier to stay disciplined. You know what to draw from and when.
What does a well-diversified portfolio look like in real life?
Let’s talk about Sharon, a client who came to me a few years from retirement. She had over 20 holdings, spread across several accounts. At first glance, she looked diversified. However, a closer look uncovered some significant issues.
Her growth positions were posing too much risk for her stage of life. Her income funds weren’t producing the income she needed. And many of her investments overlapped. She had multiple holdings that looked unique but were built on the same companies.
So we restructured.
We identified which dollars were for short-term goals, like helping her kids purchase a home. Which ones were earmarked for giving. Which needed to grow untouched.
And we eliminated redundancy to give purpose to every piece of her portfolio.
Effective diversification didn’t require more investments; it just required a better strategy.
Why can simplification be a smart diversification strategy?
Sometimes, simplification is the most strategic move you can make—not for the sake of ease, but for the sake of discipline.
A good portfolio shouldn’t leave you second-guessing every move when the market shifts. It should help you stay focused, clear, and steady.
Think of it this way: the best sports coaches don’t hand their team a 50-page playbook before a big game. They focus on a few strong plays the team understands—and can execute under pressure.
The same applies to your portfolio. If you understand it, you can trust it. And when you trust it, you’ll stick with it.
Know your why when you diversify. Understand what you own, and why!
Contact Information
Keith Demetriades, CFP®, CKA®, helps individuals, families, and organizations integrate faith-based principles into their financial planning. Oikonomia is a foundational concept in his practice, reflecting his commitment to stewardship, purpose, and making your life count.
For more information, contact Keith at (806) 223-1105 or visit https://www.kingsview.com/advisor/keith-demetriades/.
Disclaimer: The information provided in this blog is for educational purposes only and should not be considered financial advice. Please consult a qualified financial advisor to discuss your specific situation and needs. Past performance does not indicate future results, and all investments carry risks, including potential loss of principal. Any financial product or strategy references are purely illustrative and should not be construed as endorsements or recommendations.
