Many investors mistakenly assume that buying an index fund or exchange-traded fund that tracks a major benchmark, like the S&P 500 index or the NASDAQ, will provide them with adequate diversification. What they fail to recognize is that these funds or ETFs typically only represent one asset class – usually large cap US stocks. To get true, proper portfolio diversification, you need to buy exposures to multiple asset classes that are, in the words of your high school statistics teacher, “less than perfectly positively correlated”.

You can read the entire March 17, 2014 Reuters article here.