When building an investment portfolio, many investors assume that owning a total market index or an S&P 500 fund provides sufficient diversification. 

While these options offer exposure to a wide range of companies, they often remain heavily weighted toward large U.S. companies. 

As a result, total market portfolios may behave similarly to the S&P 500 over time.

Diversification, however, involves more than holding multiple stocks. 

It includes allocating investments across various asset classes, company sizes, and geographic regions that may not move in tandem. 

This broader approach can help reduce the impact of market volatility.

For example, during certain periods like the early 2000s, large U.S. stocks experienced negative returns, while other asset classes, such as international and small-cap value stocks, performed more favorably. 

Including these segments in a portfolio may provide added balance and reduce reliance on a single market segment.

Diversification does not guarantee a profit or protect against loss, but it may help manage risk over time. 

Investors should evaluate their strategy regularly to ensure alignment with long-term financial goals and consider speaking with a financial professional for guidance.

https://www.dimensional.com/hk-en/insights/beware-of-sample-periods

https://www.dimensional.com/ca-fr/insights/a-tale-of-two-decades