This paper examines the portfolios of over 40,000 equity investment accounts from a large discount brokerage over a six-year period (1991-96). The study finds that most investors are under-diversified, despite the benefits of diversification. Investors appear to use a "naive" diversification strategy, not considering stock correlations. Over time, diversification has improved, but this is mainly due to changes in market correlation, not better stock selection. Young, active investors are over-focused and hold under-diversified portfolios. Cross-sectional analysis shows that lower-income and non-professional investors hold the least diversified portfolios, while retirees hold the most diversified. The study also finds that investors with higher portfolio turnover rates hold fewer stocks and have lower risk-adjusted returns. The results suggest that investors realize the benefits of diversification but face challenges in implementing it. The study highlights the role of psychological factors, such as the "illusion of control," in investor behavior. The findings indicate that investors often fail to diversify properly, leading to higher risk exposure. The paper also explores the relationship between diversification and performance, finding a positive correlation between diversification and risk-adjusted returns. Overall, the study shows that investors are under-diversified and that factors such as age, occupation, and income influence diversification levels. The results have implications for asset pricing and investment behavior.This paper examines the portfolios of over 40,000 equity investment accounts from a large discount brokerage over a six-year period (1991-96). The study finds that most investors are under-diversified, despite the benefits of diversification. Investors appear to use a "naive" diversification strategy, not considering stock correlations. Over time, diversification has improved, but this is mainly due to changes in market correlation, not better stock selection. Young, active investors are over-focused and hold under-diversified portfolios. Cross-sectional analysis shows that lower-income and non-professional investors hold the least diversified portfolios, while retirees hold the most diversified. The study also finds that investors with higher portfolio turnover rates hold fewer stocks and have lower risk-adjusted returns. The results suggest that investors realize the benefits of diversification but face challenges in implementing it. The study highlights the role of psychological factors, such as the "illusion of control," in investor behavior. The findings indicate that investors often fail to diversify properly, leading to higher risk exposure. The paper also explores the relationship between diversification and performance, finding a positive correlation between diversification and risk-adjusted returns. Overall, the study shows that investors are under-diversified and that factors such as age, occupation, and income influence diversification levels. The results have implications for asset pricing and investment behavior.