How diversified is your portfolio, really?
Most Australian professionals hold two positions that look like a diversified portfolio. For a decade that was enough. The case for looking wider is stronger now than it has been in years — and it has nothing to do with chasing what’s performing.
Try this.
Open your superannuation statement, then whatever you hold outside it, and write down what you actually own.
For most Australian professionals the answer is roughly the same two things: Australian shares, and a global or international fund which — when you look through to what’s inside it — is largely a few dozen very large American companies.
Two positions. It looks like a portfolio.
Why nearly everyone ends up with a concentrated “diversified” portfolio
This isn’t a failure of judgement. It’s the predictable result of two entirely reasonable habits.
The first is home bias. Investors everywhere hold more of their own market than its share of global markets would suggest, and Australians are no exception. We back what we can see: the companies we buy from, the bank we’ve used for twenty years, the names in the business pages. It feels like informed judgement. Mostly it’s proximity.
There are real reasons for some of it — franking credits and the absence of currency risk both genuinely favour domestic holdings for Australian investors. But those reasons explain a tilt. They rarely explain the size of the tilt most portfolios actually carry.
The second is that the fix looks like it’s already in place. Most people who worried about concentration solved it by adding a global fund. That was the right instinct. But a large share of global market capitalisation now sits in a relatively small number of very large companies in one country, and a broad global index reflects that faithfully.
So the international allocation that was supposed to spread things out is itself concentrated — in one market, and within that market, in one part of it.
Neither of these was a mistake. Both did well. That’s precisely why they went unexamined.
What’s changed
For most of the last decade, holding those two positions worked. Both did the work, and there was no obvious cost to not looking closely.
What’s shifted is that growth is now arriving from more places at once than it has in years.
The build-out of electricity generation and grid capacity that AI demand is running into is a physical, industrial undertaking, not a software one. European governments are rearming at a scale not seen in decades, with the industrial spending that implies. Investment in AI infrastructure has broadened well beyond a handful of American names into the companies that build, power and supply it. And the economies of North Asia sit close to the centre of much of that manufacturing.
Describing that is not a recommendation, and none of it is a reason to chase anything — chasing themes is how people end up concentrated in something new instead of something old.
It is a reason to ask a duller and more useful question.
The real question: how diversified is your portfolio?
Was this portfolio built for the last decade, or the next one?
Most portfolios are assembled gradually. A super fund chosen when you started work. An allocation set once and never revisited. A global fund added at some point to feel more spread. Each decision sensible on its own, none of them made with the others in view.
The useful exercise isn’t to count how many holdings you have. It’s to ask how many separate things they actually depend on. Two funds that rise and fall together are one position wearing two names.
Why this matters more if you own a business
If you own a practice or a business, most of your wealth is already concentrated in it — often alongside the premises, and usually alongside your income.
That was almost certainly the right decision. Building something of your own is how most wealth in this country is actually created, and it deserves the commitment it got.
Which is exactly why the portfolio deserves attention. It is the one part of your wealth where genuine spread is a choice you get to make, rather than a consequence of what you do for a living.
Getting it right is not one conversation with one adviser
How you hold investments matters as much as what you hold. Structure affects tax. Tax affects what a change actually costs to make. Borrowing capacity affects what’s possible at all. Timing affects all three.
Handled by three separate professionals who never speak to each other, those interactions are where good intentions quietly become expensive. Handled at one table, they’re just a plan.
That’s the case for integrated advice, and portfolio concentration is where it shows up most clearly.
Frequently asked questions
What is home bias in investing?
The tendency to hold a much larger share of your own country’s market than its share of global markets would imply. It’s common in every market, and pronounced among Australian investors.
Isn’t a global index fund already diversified?
It’s diversified across many companies, but a large share of global market capitalisation currently sits in a small number of very large companies in one country. A broad global index reflects that concentration rather than offsetting it.
How many holdings should a portfolio have?
The count matters less than the independence. The more useful question is how many separate outcomes your holdings actually depend on.
Does diversification mean selling what I own?
Not necessarily. It more often means adding exposure that doesn’t depend on the same things — and doing it in the right structure and order, which is where advice earns its keep.
How often should a portfolio be reviewed?
At minimum when your circumstances change materially — a business sale, a new practice, a change in income or family situation. Beyond that, a periodic review guards against a portfolio quietly becoming a portfolio built for a decade that has already passed.
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