How to diversify your portfolio

Diversification protects you from being wrong about any single company. But there's a point where adding more names stops helping and starts just tracking the market expensively. Here's how to get the balance right.

By Nathan Wickham-Hurd · Founder, Oak Growth · First-class Economics & Finance, MBA · Last reviewed July 2026

What diversification actually does

Diversification doesn’t raise your expected return — it limits the damage any one mistake can do. Put half your money in a single company and if that company fails, so does your portfolio. Hold it at 3% and the same failure costs you 3%. Nobody picks winners every time, so the point of spreading your money is that being wrong occasionally doesn’t undo everything else you got right.

The ways to diversify

Across companies

The most basic layer. A broad index fund gives you hundreds of companies in one purchase — the simplest diversification there is.

Across sectors

Ten bank shares isn't diversified. If a sector suffers, everything in it falls together. Spread across different industries so one shock doesn't hit everything you own.

Across geographies

A UK-only portfolio is a bet on one economy. Adding US, European or global exposure spreads that risk — though global funds are often dominated by US companies, so check what's actually inside.

Across asset types

Equities, bonds, and sometimes commodities like gold behave differently from each other. Holding assets that don't all move together is what smooths the ride.

How many stocks is enough?

Most of the benefit of diversification arrives surprisingly early — the gap between owning 1 stock and 20 is enormous; the gap between 30 and 100 is small. Beyond a point you’re paying attention (and sometimes fees) for very little extra protection.

Buffett’s counterpoint is worth knowing: he argues wide diversification is protection against ignorance, and that if you genuinely understand a business you don’t need dozens of them. That works if you do the research. If you don’t, diversify.

Over-diversification is a real cost

Own 200 stocks and you’ve essentially built an expensive index fund — your best ideas get diluted by your worst, and you can’t possibly follow them all. A concentrated set of businesses you’ve actually researched, each bought at a margin of safety, is a different strategy from owning everything.

A practical shape

A common approach: a diversified index base handling the broad exposure, plus a smaller number of individual companies you’ve genuinely analysed. You get baseline protection from the base, and your research effort goes where it can actually add something.

Research fewer stocks, better

Oak Growth screens 1,000+ stocks down to the ones passing all four quality pillars at a genuine discount — so a focused portfolio is built on analysis, not guesswork.

Explore Oak Growth

Common questions

How many stocks should I own to be diversified?

Most of the risk-reduction benefit arrives within the first 20–30 holdings across different sectors. Beyond that, additional stocks add very little protection while making the portfolio harder to follow.

What does a diversified portfolio look like?

Typically a mix across companies, sectors, geographies and asset types — often a broad index fund as a base, plus other holdings that don't all move in the same direction at the same time.

Can you be too diversified?

Yes. Owning very large numbers of stocks dilutes your best ideas and effectively recreates an index fund, often at higher cost and effort. Diversification protects against mistakes, but it can't create returns.