Having too many
investments in your portfolio doesn't allow any of the
investments to have much of an
impact, and an over-diversified portfolio (sometimes called «diworsification»)
often begins to behave like an index
fund.
Investors clearly understand that higher fees can have a negative
impact on their net return, as is evident in the price war in mutual
fund fees, but a few basis - points difference in visible fees is far less meaningful in performance
impact than the
often - large hidden costs.14 For example, switching from a low - turnover strategy to a sloppily constructed strategy that spends scores of basis points in incremental trading costs can cost the investor dearly in performance.15 The same holds true for the buyers of opaque high - fee products (hedge
funds and illiquid private
investments), for which substantial costs may be hidden from sight.