Better Intellectually Than Empirically

I’ve had conversations with dozens of people who ask me about a model their broker suggested to them that puts together mutual funds from different industrial sectors in the name of diversification. The implication is that by diversifying into different sectors you reduce risk. Intellectually it makes sense that when one sector suffers, others may fair better. It also is an opportunity for the broker to differentiate himself from his competitors and earn a few extra fees. From an intellectual...