One of the clearest ways to see why diversification is important is to look at the performance statistics of funds that hold multiple stocks compared to owning individual stocks.
BlackRock has a great chart utilizing data from Morningstar that reveals how many individual stocks lost money compared to mutual funds and exchange-traded funds over the last three years.
And it’s not even close.
Take a look at the chart on the left and you will find that while 1,566 individual stocks lost money, only 2 funds lost money.1
If you look toward the right, you see something even more startling: over ten years zero funds lost money, yet 680 stocks did.
What about longer periods?
Dimensional Funds’ Dr. Wes Crill has the data. He reveals that “Only about a fifth of stocks survive and outperform the market over 20-year periods.”2
Almost 2 out of 10 get delisted for bad reasons. You wouldn’t want to have owned the 18% of stocks that ended like that. As I’ve written before, stocks that do badly can spoil a portfolio, and stocks that do well can supercharge a portfolio.
It comes as no surprise to anyone that some stocks have done astonishingly well and outperformed the overall market.
For example, the top three performing stocks since February 2001 are Apple, NVIDIA, and Monster Beverage Corp. If you had put $1,000 back then in each of those companies, you’d have around $3,500,000.3
Not too shabby.
But as we know from the above data, not all stocks do that and some even go belly up, so funds can be an excellent way to diversify your portfolio and manage risk.
There is more to making investment decisions than simply charts on past performance or a brief article on the pros and cons of each.
If you are curious about the kind of risk you are taking or are looking for a second opinion on your diversification, reach out to our wealth management team.
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Sources:
1. “Student of the Market”, January 2026, page 7. Accessed online: https://www.blackrock.com/us/financial-professionals/literature/investor-education/student-of-the-market.pdf
2. “Singled Out: Historical Performance of Individual Stocks”, May 11, 2022. Accessed online: https://www.dimensional.com/us-en/insights/singled-out-historical-performance-of-individual-stocks
3. Data from YCharts: https://get.ycharts.com/resources/blog/the-best-performing-stocks/