)
Diversification means spreading your money across different investments and is a fundamental principle for mitigating risk. Those who concentrate all their capital into a single asset type expose themselves to unnecessary market risks.
A well-structured portfolio that includes various asset classes can help cushion more extreme fluctuations. Many investors aim to stabilize their wealth over the long term—especially in times of economic uncertainty and increased volatility.
As Victor Cianni, CIO at Alpian, puts it: “Diversification is the ultimate tool to avoid a total investment loss.”
Table of Contents
- What exactly does diversification mean in investing?
- How to diversify properly
- Why diversification is important in the long term
- When diversification reaches its limits
- How often should I adjust my portfolio?
- How Alpian supports diversification
- Avoid common diversification mistakes
- Diversification: how much is too much?
- Three key questions for better diversification
- Conclusion: diversification helps, but isn’t a cure-all
What exactly does diversification mean in investing?
Instead of putting all your eggs in one basket, your capital is spread—for example, across different sectors, regions, asset classes, or currencies. The idea: if one investment loses value, others in your portfolio may remain stable or even rise.
A practical example: someone who invests solely in Swiss tech stocks takes on concentrated risk. A mix that includes international equities, bonds, tangible assets, and gold would be better positioned in such a case.
How to diversify properly
Effective diversification often includes multiple dimensions:
Asset classes: equities, bonds, real estate, commodities
Regions: Switzerland, Europe, USA, emerging markets
Sectors: technology, healthcare, consumer goods
Currencies: CHF, USD, EUR, and others
The more independent these elements are from one another, the stronger the diversification effect. But how can you tell if investments truly react independently?
A key factor is correlation. This measures how similarly two assets have behaved in the past. High correlation means they respond similarly to market events. Low or negative correlation indicates divergent behavior—beneficial for diversification. However, correlation is only a snapshot in time. It changes and doesn’t guarantee future outcomes.
“Correlations are helpful but not reliable enough to base a strategy on alone.” – Victor Cianni, CIO Alpian
That’s why diversification starts not with the number of positions, but with an analysis: which investments truly behave differently from what I already own—and can still generate returns?
An example:
Cryptocurrencies like Bitcoin and Litecoin often show similar price patterns despite being different brands.
Gold, however, tends to behave differently from equities during crises and is often considered a useful diversification element.
That doesn’t mean gold is automatically better—only that it may complement other assets in specific scenarios.
Why diversification is important in the long term
Potential stability: A diversified portfolio is less likely to react sharply to individual market events, helping to offset losses in specific areas.
Psychological relief: Lower volatility can reduce emotional decision-making. Many investors appreciate the peace of mind a broadly diversified portfolio offers.
Encourages long-term thinking: Diversification supports strategies that can be followed consistently over years—even through rough markets. Combined with the power of compounding, this can be a major advantage.
When diversification reaches its limits
A broad portfolio can help avoid major losses—but this security comes at a cost: the range of possible returns narrows.
One S&P 500 stock could deliver between –36% and +51% annually from 2016 to 2021. But a portfolio of 100 stocks ranged only from –10% to +27%.
In practice, this means: the more diversified, the less risk of individual failures—but also the lower the chance of exceptional outperformance through just a few top performers.
More complexity also brings challenges: the more positions in a portfolio, the harder it is to manage. Studies show that many people struggle to process large amounts of complex information. And the tools that make such structures manageable are often reserved for institutional investors.
So diversification isn’t automatic, it must be intentional, actively maintained, and applied in moderation.
How often should I adjust my portfolio?
Invest once and forget? Better not. Different investments perform differently. Stocks may rise while bonds remain stable. This shifts your original allocation.
That’s why rebalancing matters—regularly bringing the portfolio back to your intended mix. It helps keep risk under control.
How Alpian supports diversification
Many know that diversification is important—but not how it works in practice. That’s where Alpian comes in: we help you invest your money wisely and with structure, without unnecessary complexity.
Alpian’s investment philosophy is based on four principles:
Structured asset allocation based on academic research
Clear diversification across asset classes, countries, sectors, and currencies
Long-term investing instead of short-term reactions
Maximum transparency on costs, risks, and decisions
What does that look like in practice?
Portfolios are built based on individual risk profiles
ETFs enable cost-effective diversification
Rebalancing keeps your strategy on track
Personal access to expert advisors if you have questions
Example of a medium-risk portfolio:
45% global equities (e.g. MSCI World ETF)
25% bonds (Swiss and international)
15% Swiss equities
10% alternative assets (e.g. commodities)
5% cash
This portfolio is continuously monitored and adjusted as needed to stay balanced.
Important note: This is for illustration only and not investment advice. Actual portfolio composition should match individual risk tolerance and goals.
)
Looking for expert investment advice? Schedule your free session with a wealth advisor today.
Avoid common diversification mistakes
Concentration risk: “Home bias” is common—many investors overallocate to their home market (e.g. Swiss stocks).
False diversification: Many positions from the same sector or region tend to behave similarly, reducing effectiveness.
Over-diversification: Too many small positions can make a portfolio hard to manage. “The more holdings in a portfolio, the harder it becomes to manage sensibly.” – Victor Cianni, CIO Alpian
Cost traps: Too many trades and fees can eat into returns. ETFs often help with cost control.
Diversification: how much is too much?
No diversification is risky—but too much can be problematic too. A portfolio cluttered with many small holdings becomes hard to track. The risk: emotional reactions to minor movements in assets that represent just 1–2% of the portfolio may lead to rash decisions.
“A portfolio with 80 small positions is harder to analyze than one with a few well-chosen ones.” – Victor Cianni, CIO Alpian
The challenge is to strike the right balance:
Enough variety to avoid concentration risks
Not so much that it becomes unmanageable
Studies also show that our brains can only process a limited number of complex topics at once. The tools pros use are often expensive and exclusive to institutions.
A relatable comparison: imagine leading a choir. One has two singers, the other 80. In which group is it easier to spot a wrong note?
Conclusion: variety helps—but only if it’s manageable.
Three key questions for better diversification
Selecting the right mix is more than a math exercise. If you want to diversify consciously, ask yourself:
Which investments behave differently from what I already own and could still generate returns?
How much potential return am I willing to trade off to reduce risk?
Where do I draw the line to avoid getting overwhelmed by too many asset types?
These questions don’t replace professional advice—but they offer clarity before adding new elements to your portfolio.
Conclusion: diversification helps, but isn’t a cure-all
Diversification clearly adds value: it spreads risk, can offer psychological comfort, and builds structural stability.
But: diversification is not a strategy by itself. It doesn’t protect from all losses and must match your goals, time horizon, and risk appetite.
With Alpian, you can implement a balanced strategy—digitally, expertly, and with guidance. Whether you're already investing or just getting started, it’s always worth taking an informed look at diversification.
)
)
)
