Many investors believe that simply buying many stocks—ten, twenty, or more—means "diversifying risk," following the simple principle of not putting all eggs in one basket.
In reality, holding many stocks does not always make a portfolio safer. What determines good diversification is not the "number" of securities held, but how those assets move in relation to each other and the proportion of different asset types that respond differently to economic conditions.
Thairath Money explores why the idea "many stocks = good diversification" is a trap and what factors to consider for effective Asset Allocation.
Holding many stocks may not indicate good risk diversification at all. If an investor holds 20 stocks but they are all from the same market, similar industries, or affected by the same factors, then during a crisis or adverse event, those stocks will likely decline together.
Kiatnakin Phatra Securities . . .explained this point in the article"What Is Asset Allocation? Discover Professional Investment Allocation Secrets Without Relying on Luck!"
stating that the biggest investment risk is limiting your capital to only one asset or market.
When an adverse event occurs, investment values tend to move in the same direction, and if that direction is down, it can cause severe losses, potentially wiping out the entire investment.
Even moving entirely into low-risk assets like bank deposits is not the solution, as such investments usually yield returns too low to meet investors’ goals.
This reflects that the true solution is not avoiding risk but appropriately spreading it.
and alternative assets like gold, oil, or real estate.
Each group responds differently to economic conditions, especially stocks and bonds, which statistically often have inverse return relationships. Holding both in a portfolio helps reduce overall volatility.
Five Techniques to Diversify Risk
If the number of stocks isn't the answer, the question is how investors should properly diversify risk.Thitimeth Phokchai, Investor Education Development Division, Stock Exchange of Thailand, stated in an article"Five Risk Diversification Techniques to Strengthen and Increase Portfolio Returns"
that a portfolio that looks good today may become overly concentrated and risky if asset allocations are not regularly reviewed, and he proposed five guidelines. 1. Rebalance
Rebalancing the portfolio balance. For example, if your target allocation is 60% stocks and 40% bonds, but stocks rise continuously and increase to 80-90% without adjustment, a market downturn could cause severe losses due to the overweight in stocks.
Rebalancing can be done by selling assets that exceed target proportions or adding funds to assets that have decreased, returning the portfolio close to its original target. 2. Increasing bond allocation
Especially for investors approaching or over 50 years old, reducing portfolio risk and building buffers with high-quality short- to medium-term bonds and some cash can make the portfolio safer while still allowing long-term growth potential. 3. Increasing allocation to international stocks outside the U.S.
Although U.S. stocks have outperformed the global market over the past 10 years, their valuations have become stretched. Meanwhile, non-U.S. stocks still lag behind and offer potential for good returns going forward.
Having foreign stocks in the portfolio helps diversify country and currency risk and offers opportunities to gain from markets that are not overvalued. 4. Increasing value stocks and small-cap stocks
Many investors holding U.S. index funds like the S&P 500 may not realize their portfolios are heavily weighted toward large-cap and technology stocks.
For example, the SPY fund has about 8% allocation to Nvidia alone, and the technology sector accounts for over a third of the fund. Adding small-cap or value stocks helps reduce concentration risk in these sectors. 5. Increasing dividend stocks
These tend to be concentrated in traditional sectors such as utilities, consumer goods, healthcare, and financials, which often move differently from technology stocks.
Adding dividend stocks helps maintain market exposure without relying too heavily on any single theme while generating cash flow that stabilizes long-term portfolio returns.
Therefore, good diversification requires looking beyond the number of holdings to asset class allocation, asset price correlations, and regular portfolio rebalancing.
All of this must be designed to match each investor’s risk tolerance, a principle experts emphasize as the cornerstone of strong, sustainable long-term investing.If you’re interested in such investment topics, get ready for MONEY FEST 2026, the most comprehensive investment festival of the year by Thairath Money— a free event that brings investment closer than ever. Register at
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