Diversifying into value stocks / funds is probably the next greatest cause of underperformance. Value stocks have a relative performance that is about 10 percentage points per year below the S&P. Your worst holding which is now a value holding is 30 percentage points below the market.

Cap weighted ETFs are great investments. Equal weighted ETFs are terrible investments. Why do you want to own something that contains as much as 80% underperforming stocks? It could be years before these stocks mean revert. Owning sectors that are out of favor is a similar mistake.

The whole concept of diversification is that when part of the portfolio is falling, another part is rising. The net result is you have no gain. So what is the point in diversification? Diversification does make sense if all the investments outperform the market. It is very hard to find that many good investments.

In theory diversification is meant to reduce drawdown. Unfortunately high gain investments usually have high drawdown. Even the S&P has 20% drawdown every 5 years .

The best an investor can do is use a buy and hold strategy and realize drawdown is part of owning equities and use corrections to buy more good investments.