You're a wise old owl, aren't you? You wouldn't do anything daft like, say, investing in the same stock twice without even realising it? Or maybe three or four times. Or even five or six.
I bet you have. I bet you've doubled up all over your portfolio, and are only dimly aware of what you've done. Why did you do it? What were you thinking of?
For that matter, what was I thinking of?
Diversify or die
We all know that diversification is a good thing, unless you're an all-or-nothing, do-or-die, death-or-glory investor, in which case, spreading your money between different asset classes probably looks like rank cowardice. But unless you pay close attention, diversification can also go badly wrong.
Instead of spreading your risk, you end up doubling it. Or trebling it. Or quadrupling it.
I'm not alone...
I've unwittingly doubled up all over my portfolio. That's because I hold a mixture of trackers, actively managed funds and individual company stocks, assembled over a dozen years.
It is time to be a bit more single-minded.
If you hold a FTSE 100 (Euronext: VFTSE.NX - news ) tracker or exchange-traded fund (ETF) and any company stock in the FTSE 100, whether it's Barclays ( LSE : BARC.L - news ) (LSE:BARC), GlaxoSmithKline (Other OTC: GLAXF.PK - news ) , Royal Dutch Shell or Vodafone (LSE: VOD.L - news ) (LSE:VOD), then you too have doubled as well.
Overexposed
If you hold an equity income funds such as Invesco Perpetual Income , as many a Fool does, then you are probably doubling up all over the place.
Neil Woodford's behemoth has major holdings in Glaxo, AstraZeneca (LSE: AZN.L - news ) (LSE:AZN), BT Group (LSE: BT-A.L - news ) (LSE:BT-A), British American Tobacco (LSE:BATS), Vodafone, BG Group (Hamburg: BGO.HM - news ) (LSE:BG), Reckitt Benckiser (LSE: RB.L - news ) (LSE:RB) and Imperial Tobacco (LSE: IMT.L - news ) (LSE:IMT), and a lot more besides.
There is a good chance you will hold some of the stocks directly yourself. And it is a racing certainty you will hold them in a FTSE All-Share (FTSE: ^FTAS - news ) tracker.
You might be exposed to some stocks three or four times over. In fact, to see how bad it can get, let's take my portfolio as an example.
The joy of six
I hold pharmaceutical giant Glaxo directly. I also hold the stock in Invesco Perpetual Income. And iShares FTSE 100 (LSE:ISF). As if that wasn't overkill, it also features in another unit trust, equity income fund Rathbone Income.
It's even the fourth-largest holding in Artemis UK Special Situations, at 4.1% of the fund. And I wouldn't be surprised if it pops up somewhere in Jupiter Fund of Investment Trusts.
I'm shocked. I actually hold Glaxo six times over. Forget doubling up. I'm sextupled up.
Gassed up
One piece of good news is that you're unlikely to be quadrupled or quintupled up in some tiny, go-for-broke, biopharm start-up. It is most likely to occur with those FTSE 100 big hitters
The worrying news is that you will be overweight in sectors that are heavily represented in the benchmark index. Oil and gas companies make up nearly 20% of the FTSE 100. Miners total around 15%. So do banks.
These are important sectors, but do you really want that much exposure? Especially if you add to it by directly holding, say, BP (LSE:BP) and Shell (LSE: RDSB.L - news ) , as I do. Or BHP Billiton (Hamburg: BHP1.HM - news ) . Or Royal Bank of Scotland (LSE: RBS.L - news ) .
The looking-glass portfolio
And do you need to hold BHP Billiton and Rio Tinto (Berlin: CRA1.BE - news ) (LSE:RIO) as well as a China growth (Stuttgart: A0M90X - news ) fund? As we saw this week, when China stalls, so do mining stocks. They are very closely correlated.
And so will your FTSE tracker. Although Invesco Perpetual Income won't, because Woodford has mostly shunned this sector of late.
If you hold a miner and China, do you need to hold a commodity unit trust such as JPM Natural Resources (as I do)? After a while, your portfolio starts to like a hall of mirrors, constantly reflecting itself.
That makes it impossible to know exactly where you stand.
Are you sixed up?
Take a look at your own portfolio. Are you simply buying the same stocks, again and again? And are you wasting money by paying a fund manager to buy stocks you already hold?
Don't just look at your portfolio, look through it. If you're worried about a China hard landing, make sure you know what else will come crashing back to Earth.
Before buying any share, check whether you are already exposed to it in a fund, and vice versa. Otherwise, you could land yourself in double trouble.
Or triple, quadruple, quintuple, sextuple trouble.
>Harvey owns shares in Barclays, BP, BHP Billiton, GlaxoSmithKline, RBS, Shell and Vodafone, and investment funds iShares FTSE 100 ETF, Artemis UK Special Situations, Invesco Perpetual Income and JPM Natural Resources. The Motley Fool owns shares in AstraZeneca, BHPBilliton, Reckitt Benckiser and GlaxoSmithKline.
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