Diversification is a tricky thing to achieve these days if you, like many investors, stick primarily to mutual funds and ETFs that are tied to top indexes. It's especially tough if your funds rank their holdings by how big the companies are.
Take a look at the S&P 500. The popular index of blue chip US companies might as well be a tech fund.
Five of the six most-valuable companies in the SPDR S&P 500 ETF (SPY) are Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Google owner Alphabet (GOOGL) and Facebook (FB). They make up nearly 15% of the fund's total assets.
"People have been fooled into thinking that the S&P 500 is diversified," said Lamar Villere, manager of the Villere Balanced Fund.
Do your homework and know what you own
Villere told CNN Business that investors have to do their homework and not base decisions on faulty assumptions.
Here's an example: His fund owns Steris (STE), a medical equipment company based in the UK, as well as Euronet (EEFT), an electronic payments firm with its headquarters in Kansas.
Which company is more exposed to Brexit concerns and sluggish growth in the EU? Euronet. That's because Steris generated more than 70% of its sales last year from the US while Euronet only got a quarter of its revenue from America. Nearly half its sales were from Germany, the UK, Poland, Spain, Italy, Greece and France.
But Villere is confident both companies will continue to post solid earnings, despite geopolitical turmoil.
The key lesson for investors to learn is that if you own quality companies that can do well in most environments, you don't have to worry as much.
A truly diversified portfolio should have companies of all sizes
There are other ways to diversify your portfolio, too. Villere said he typically finds better investing opportunities with smaller and mid-sized companies, because their stocks are not as widely followed by Wall Street. So they often wind up being less expensive.
But he doesn't think investors should shun giant companies either. In the spirit of diversification, it makes sense to own a mix of companies of various sizes — and hold on to them for several years.
Villere said his fund's top holding is payments giant (and Dow component) Visa (V), which he said he first bought in 2011. Villere also said he bought Apple (AAPL) after Steve Jobs passed away in 2011 and just sold it last year after a "great ride."
Don't get caught up in the daily news cycle
"We're more intent on finding the best possible companies. We try not to be heavy traders and second guess ourselves," Villere said. "It does not serve you well to invest based on headlines."
Louis Florentin-Lee, a portfolio manager with Lazard Asset Management, agreed with that. He told CNN Business his firm likes "companies with sufficiently strong economic advantages" that are making a product that's "invaluable" to their customers.
"We don't care what sector a company is in," Florentin-Lee said, adding that buying shares of healthy companies is increasingly important at a time when investors are worried about global trade tension.
Any investor should want to own businesses that can not only withstand the threat of tariffs but even be able to raise prices if they must without worrying that they will lose sales.
Florentin-Lee said some examples of these types of companies are British alcoholic beverage giant Diageo (DEO), German flavors and fragrances maker Symrise (SYIEY) and credit card company MasterCard (MA).
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