Are Index Funds Over-Diversified?

Every now and then I hear the comment that index funds result in over-diversification. The thinking goes that instead of buying all of the companies in an index, you might be able to focus on a smaller subset that you believe will perform better than the market. It makes sense. Of course you can’t beat the market by holding it. The problem is that decreasing diversification leads to a wider range of possible outcomes, with a disproportionately large probability of a negative outcome, relative to the market. Referenced in this video: Some Tough Love About Dividend Investing - https://www.pwlcapital.com/some-tough... Why Indexing Works - https://papers.ssrn.com/sol3/papers.c... Catch up on our latest investing advice, insights and white papers here. https://www.pwlcapital.com/teams/pass... ------------------ Follow me on Twitter:   / benjaminwfelix   LinkedIn:   / benjaminwfelix   Visit PWL Capital: https://www.pwlcapital.com/teams/pass... PWL Capital Blog Post: https://www.pwlcapital.com/can-your-i... Follow PWL Capital on: Twitter:   / pwlcapital   Facebook:   / pwlcapital   LinkedIn:   / pwl-capital   You can find the Rational Reminder podcast on Google Podcasts: https://www.google.com/podcasts?feed=... Apple Podcasts: https://itunes.apple.com/ca/podcast/t... Spotify Podcasts: https://open.spotify.com/show/6RHWTH9... ------------------