Optimal diversification is like a Goldilocks challenge. You do not want to be too under- or over-diversified. Without enough diversification you could find your portfolio exposed to more risk than you intended or can afford. Over-diversification could make it difficult to achieve the returns needed to build or maintain your wealth. Here are some points to consider.

Historic diversifiers do not work as they once did. For example, you used to be able to diversify your stock portfolio’s core U.S. equity exposure with allocations to the major overseas stock markets: UK, Europe and Japan. However, what worked for decades no longer does. Markets, and many asset types, have become more correlated over the years.

So, it has become even more important to add diversification by including allocations to nontraditional asset classes and strategies. Examples of these include hard assets such as real estate, commodities and currencies, as well as investment strategies such as those classified as absolute return and managed futures. Do not rely only on last century’s standard range of historic diversifiers to supply you with the equivalent amount of diversification in this century.

More holdings do not guarantee more diversification. Just holding more stocks and bonds, mutual funds, managed accounts or hedge funds does not assure diversification. In fact, unintended overlap, with multiple holdings of specific securities, can result. You can end up with accidental portfolio concentration rather than diversification.

Money manager strategy drift can change your intended diversification. When you make an allocation to a money manager and that person’s strategy, you are buying into how the manager invests and the characteristics of that basket of holdings. This is all well and good, but you need to keep alert to spot if and when an investment’s characteristics change significantly enough to disrupt your intended risk/return diversification and trigger the need to replace a money manager and that person’s strategy.

Optimize and maintain your portfolio’s diversification. The starting point for this should be found in your financial plan or investment policy statement—the spelling out of your total portfolio’s return objectives and your personal risk tolerance. Next, correlation and volatility analyses should guide asset-class-allocation decisions and help refine selections of money manager strategies and investment product choices.

Once you have optimized your portfolio’s diversification, you then need to actively monitor the correlation, volatility and other risk/return characteristics of the investments it holds. If you skip this step, you may start with a diversified portfolio but lose it due to drift because you were not tracking it to know what changes to make, and when.

Portfolio diversification is not a “set it and forget it” task. Maintaining diversification takes time, effort and the appropriate analytic tools. The payoff is well worth it. You will reduce the odds of the risk/return of your investment portfolio being too hot or too cold and, like Goldilocks, you will find you can sleep well at night.