For generations, financial advisors have leaned on a simple rule of thumb: hold 30 well-chosen stocks, and you’re diversified. But that idea—rooted in 1970s-era market studies—has quietly outlived its usefulness. New research, paired with firsthand insight from financial planning experts like Michael A. Scarpati, CEO of RetireUS, suggests the “magic number” may have always been more myth than method.

“Most people rely on modern portfolio theory to guide their investments, but there’s nothing modern about it,” says Scarpati. “The framework was created in the 1950s and doesn’t account for the tools now available to protect against downside risk.”

It’s a stark rebuke of conventional investing wisdom. While the premise behind the 30-stock strategy is grounded in academic studies—most notably, Fisher and Lorie’s 1970 paper that suggested a 95% risk reduction with a 30-stock portfolio—experts today argue the math doesn’t hold up to real-world complexity. Later studies found that even portfolios with 60 stocks often failed to replicate market performance or reduce tracking error sufficiently.

Why? Because standard deviation—the original measure used to define “risk”—doesn’t account for structural holes in most portfolios. “Spreading assets across mutual funds and ETFs might look diversified on paper,” Scarpati explains, “but it often leaves portfolios exposed to the same systemic risks.”

In other words, the illusion of diversification can be dangerous. A portfolio built on overlapping assets—say, five different S&P 500 ETFs—might give the appearance of balance while concentrating risk in the same market segment. That becomes a problem in today’s volatile landscape, where inflation, geopolitical instability, and interest rate whiplash can drag down entire sectors or asset classes at once.

What does true diversification look like? According to Scarpati, it’s not just about allocating across stocks and sectors. It’s about including tools designed to actively reduce risk—and that’s where most retirement portfolios fall short.

“If your portfolio doesn’t include positions that offer protection—like structured notes, buffered ETFs, or protected growth indexes—you’re playing an outdated game,” he says. “Today’s market demands more than diversification. It demands strategy, structure, and smarter tools that actually keep you in control.”

That shift from allocation to protection is especially critical for retirees, who don’t have time to wait out down markets. A poor sequence of returns in the early retirement years can derail an otherwise sound plan. Add in required minimum distributions (RMDs), rising Medicare premiums, and the potential erosion of Social Security benefits, and the stakes get even higher.

It’s not just theory. A recent study of U.S. stock performance between 1983 and 2006 found that 25% of all market gains came from just 1% of stocks—while nearly 40% of individual stocks lost money over time. Picking the right 30 is less diversification and more wishful thinking.

That’s why Scarpati and other fiduciary planners are pushing for a broader set of tools. Low-cost, passive ETFs that track global markets. Asset classes beyond U.S. equities. And for those with more complex needs, structured investments designed to cap losses while still offering potential upside.

The financial industry is catching on—slowly. Robo-advisors and automated investing platforms are incorporating broader allocations, and newer investment products are giving retail investors access to risk management strategies that were once exclusive to institutions.

Still, Scarpati says education remains the missing link. Many Americans simply don’t know what alternatives exist or assume they’re not qualified to access them.

That’s part of the mission behind Government Transition Decision HQ, a free support hub launched by RetireUS to help federal employees rework outdated retirement plans and access personalized, fiduciary guidance. It’s a response to what Scarpati sees as a systemic gap in financial planning: outdated advice paired with outdated tools.

“Investing isn’t just about chasing returns,” he says. “It’s about managing risk in a way that aligns with your goals.”

In 2025, that means letting go of the idea that 30 stocks can protect you—and embracing strategies that actually can.