Your portfolio
Effective number of holdings
Also called: diversification, concentration, herfindahl
How many equally sized holdings your portfolio behaves like. Ten holdings where one is 80% of the money behave more like one or two.
Formula
Effective holdings = 1 ÷ Σ(weight²) (the inverse Herfindahl index)
Worked example
- A: 40.0% → 0.400² = 0.1600
- B: 30.0% → 0.300² = 0.0900
- C: 20.0% → 0.200² = 0.0400
- D: 10.0% → 0.100² = 0.0100
- Sum of squared weights = 0.3000
- 1 ÷ 0.3000
Result: 3.3
How to read it
Funds such as a global or S&P 500 tracker count as one holding here even though they hold hundreds of companies, so if you own funds you're more diversified than this number suggests.
See it with real numbers: Health check → (free account)