Q: I am frustrated. I was told to diversify my holdings using index funds, so I did. I was told to put part of my investments in foreign stocks, so I did that too. Now I find that my portfolio isn’t keeping up with the market. If diversification is such a great idea, why does it hurt so much?
A: If you diversified your portfolio hoping it would boost your investment performance, I can understand why you might be frustrated. Though it can sometimes help with performance, diversification is mostly an exercise in risk management.