“Overdiversification.” You won’t find it in the dictionary but you’re likely to find it in every 401(k) plan. What is it and why has it appeared to have gone viral among retirement plan investors? 

The article “7 Deadly Sins Every ERISA Fiduciary Must Avoid: The 4th Deadly Sin – Overdiversification,” (Fiduciary News, October 25, 2011) states that diversification, originally designed to reduce overall risk, has mutated into overdiversification. As a result, 401(k) investors may have actually increased their risk of both underperformance as well as lowered the chances of meeting their retirement goals.

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