Diversification is important because it relates to is returns and consumption. It's a means to an end.vineviz wrote: ↑Fri Oct 23, 2020 5:16 pmYou've got it right. All else equal, a more diversified portfolio creates lower sequence of returns risk for investors who are withdrawing (decumulating) from the portfolio.absolute zero wrote: ↑Fri Oct 23, 2020 3:25 pm I’m no expert in this, but my understanding is that diversification is important but nowhere near as important as returns during accumulation.
On the other hand, during the first 5-10 years of retirement, diversification can make the difference between going broke or being just fine. Even if two portfolios end up having the same return after 20 years, if one portfolio dips lower than the other in the early years of retirement then it can result in an irrecoverable loss of capital.
Because SORR is linked to the level of sustainable portfolio withdrawals, which in turn relates directly to the thing investors care most about (consumption), paying attention to the level of portfolio diversification is important. And too often neglected, IMHO.
Diversification is a component of portfolio construction. Other aspects are security selection, tax consequences, expenses, various tilts, etc.
A generally accepted operational definition of diversification (other than in retrospect) would be helpful.