Diversified Portfolios Can Turn Into An Achilles Heel That Hurts Your Returns If You Aren't Careful

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Having exposure to many industries and stocks is viewed as a way to counter risk, but it can also hurt your long-term returns. It's no wonder legendary investor Peter Lynch referred to it as "diworsification," which involves overdiversifying your portfolio and minimizing potential gains in the process.One person came across diworsification when seeing what their wealth management firm was doing with their portfolio, and this person shared the entire story on Reddit.Don't Miss:These five entrepreneurs are worth $223 billion – they all believe in one platform that offers a 7-9% target yield with monthly dividends$100k+ in investable assets? Match with a fiduciary advisor for free to learn how you can maximize your retirement and save on taxes – no cost, no obligation.The Redditor's family uses a wealth management firm that handles investments for them, and now that the Redditor is old enough, they are getting "more and more control over portions of the family money."However, the Redditor wasn't impressed with the wealth management firm's investments that were spread across "large caps, mid caps, small caps, international large and small caps, emerging markets, and in these closed funds that you couldn't just look up on the internet, and lots of different ones."The Redditor lamented that it took a lot of work to figure out which funds were doing well and which weren't. None of those funds beat the S&P 500, a popular benchmark that funds like the Vanguard S&P  500 ETF (NYSE:VOO) have used to deliver high long-term returns for investors.While the S&P 500 is also a well-diversified benchmark, it has outperformed each of the funds that the wealth management firm offers. The Redditor believes that exiting those funds and putting everything into an S&P 500 ETF would streamline their investments.Trending: Microsoft's Climate Innovation Fund Just Backed This Farmland Manager — Accredited Investors Can Join the Same FundWhen most people talk about outperforming the stock market, they are talking about the S&P 500. This benchmark contains 500 of the largest U.S. corporations and periodically replaces underperformers with rising stars."I diversified quite a bit early on in my investing life and realized after five years or so that the S&P 500 is tough to beat over time," one commenter said.Terms and Privacy PolicyPrivacy & Cookie SettingsMore InfoS&P Futures6,800.75 -0.50 (-0.01%)Dow Futures46,863.00 -4.00 (-0.01%)Nasdaq Futures25,328.50 -2.50 (-0.01%)Russell 2000 Futures2,496.00 -3.50 (-0.14%)VIX16.38 +0.08 (+0.49%)Gold4,054.90 -15.60 (-0.38%)PortfolioSign in to access your portfolioSign inTop gainersDGNX Diginex Limited 30.99 +6.79 (+28.06%)NTLA Intellia Therapeutics, Inc. 24.47 +4.03 (+19.72%)APGE Apogee Therapeutics, Inc. 47.24 +7.51 (+18.90%)FIG Figma, Inc. 71.08 +10.24 (+16.83%)RXRX Recursion Pharmaceuticals, Inc. 6.09 +0.86 (+16.44%)Top losersFICO Fair Isaac Corporation 1,695.01 -184.54 (-9.82%)OPEN Opendoor Technologies Inc. 8.49 -0.80 (-8.61%)JOBY Joby Aviation, Inc. 17.37 -1.54 (-8.14%)JEF Jefferies Financial Group Inc. 54.44 -4.66 (-7.88%)AAP Advance Auto Parts, Inc. 52.59 -4.25 (-7.48%)Most activeOPEN Opendoor Technologies Inc. 8.49 -0.80 (-8.61%)BULL Webull Corporation 12.66 -0.14 (-1.09%)RGTI Rigetti Computing, Inc. 43.23 -0.67 (-1.51%)AMD Advanced Micro Devices, Inc. 235.56 +24.05 (+11.37%)PLUG Plug Power Inc. 3.6550 -0.2150 (-5.56%)Earnings eventsMy earnings eventsEarnings eventsTrending tickersAMD Advanced Micro Devices, Inc. 235.56 +24.05 (+11.37%)NVDA NVIDIA Corporation 189.11 +4.07 (+2.20%)PATH UiPath Inc. 15.58 +0.76 (+5.13%)TEM Tempus AI, Inc. 103.25 +10.24 (+11.01%)COST Costco Wholesale Corporation 914.80 0.00 (0.00%)Top economic events