Markowitz (1952) informed us of the risk-reduction advantages associated with diversification. Since then, investors, fund managers, regulators and the Courts have all taken this finding to heart, resulting in diversification being widely promoted at all levels of the investment community. But just how diversified does an investor have to be to realise almost all of the benefits of diversification?

Evans and Archer (1968) were the first to examine just how diversified one had to be to realise almost all of the diversification benefits attributable to d...