This paper examines the portfolios of over 40,000 equity investment accounts from a large discount brokerage during a six-year period (1991-1996) in the U.S. capital market. The authors find that a majority of investors are under-diversified, taking on significant idiosyncratic risk despite recognizing the benefits of diversification. Investors tend to form portfolios without considering stock correlations, leading to portfolios with high variance. Over time, the average number of stocks in portfolios increased, reducing portfolio variance, but this improvement is primarily due to changes in the correlation structure of the U.S. equity market. Cross-sectional variations in diversification across demographic groups suggest that low-income and non-professional investors hold the least diversified portfolios, while retired investors hold the most diversified portfolios. Young, active investors are over-focused and hold under-diversified portfolios. The study also finds a positive relationship between diversification and portfolio performance, indicating that better diversified portfolios earn higher risk-adjusted returns. However, investors can achieve similar performance by investing in index funds. The paper concludes that while investors recognize the benefits of diversification, they face challenges in implementing and maintaining well-diversified portfolios.This paper examines the portfolios of over 40,000 equity investment accounts from a large discount brokerage during a six-year period (1991-1996) in the U.S. capital market. The authors find that a majority of investors are under-diversified, taking on significant idiosyncratic risk despite recognizing the benefits of diversification. Investors tend to form portfolios without considering stock correlations, leading to portfolios with high variance. Over time, the average number of stocks in portfolios increased, reducing portfolio variance, but this improvement is primarily due to changes in the correlation structure of the U.S. equity market. Cross-sectional variations in diversification across demographic groups suggest that low-income and non-professional investors hold the least diversified portfolios, while retired investors hold the most diversified portfolios. Young, active investors are over-focused and hold under-diversified portfolios. The study also finds a positive relationship between diversification and portfolio performance, indicating that better diversified portfolios earn higher risk-adjusted returns. However, investors can achieve similar performance by investing in index funds. The paper concludes that while investors recognize the benefits of diversification, they face challenges in implementing and maintaining well-diversified portfolios.