Let’s explore what it really means—and whether it helps reduce risk the way most financial advisers claim.

Financial advisers often recommend diversification as the key to minimizing risk. But is it actually the best path forward?

Here are 4 common investor situations worth considering:

1. The Traditional Route:
   You meet with a financial adviser and build a diversified portfolio of stocks, bonds, and mutual funds. It sounds smart… but 85% of the time, this approach underperforms the S&P 500 by about 5%. That’s a significant drag.
2. The Index Investor:
   You stick with the S&P 500 index. Your adviser might say you’re not diversified—but you’re holding 500 companies. For many investors, this simple strategy outperforms most actively managed portfolios. In fact, many experts believe it’s tough to beat the S&P at all.
3. The Concentrated Investor:
   You hold just two stocks: AAPL and MSFT. Over the past 14 years, they’ve outperformed the S&P by 10 percentage points. Should you diversify? Possibly. But replacing part of them with something that delivers better returns is no easy task.
4. The Alternative Strategy (Stars Model):
   You allocate part or all of your portfolio to a Stars model. The 40/60 version has returned 32% annually over 14 years, outperforming the S&P by 19 percentage points. It uses 2 ETFs with exposure to 600 stocks—so yes, it’s diversified. If you reduce TQQQ from 40%, what can you realistically add that keeps performance strong?
   
   🔍 Bottom line: Diversification isn’t just about holding a bunch of different assets—it’s about understanding what actually improves your outcomes.
   What’s your approach to diversification? Are you sticking with the S&P, going traditional, or exploring alternatives?