Diversification - how much is really required?

I am an investor, but not a trader anymore yet I am told I need to be diversified to lessen the effects of any downturns. Naturally this also limits the benefits of any upturns as well as you tend to average your gains as well as your losses.

Reading about master investor Warren Buffett, he invests big in a single position; he doesn't go for a great deal of diversification in Berkshire Hathaway portfolio, well not in the way that a hedge fund manager invests.

Warren advises people to invest in index funds if they don't have the skills and knowledge to directly invest feeling that fund managers rarely out-perform the market as their fees are outrageous so they burn what little they make.

In many respects I am diversified as I  have a managed superannuation fund with Australian equities, international equities, investment grade bonds, infrastructure, private equity, cash and fixed interest. Taking advice from accountants is never great - I try to avoid where possible.

I also have a self-managed superannuation fund that predominantly invests in Australian equities, cash and fixed interest. I could possibly look at some managed investments to round out the portfolio.

As I move closer to retirement I will be seeking bonds as a hedge against short to medium downturns. I can't complain, the managed fund offers a degree of diversification and still offers pretty decent returns although not spectacular.

An argument exists where in the earlier stages of retirement investments should still be reasonably aggressive as a twenty year projected retirement time scale is a pretty long time without an income coming in through the sale of labour or knowledge.

The option exists to return to work, but nobody really wants that nor do they want to be living on handouts sleeping under a bridge. Retirement is a risk, that's for sure, made even harder by government interference intent on getting their hands on the pot of gold you have worked for over the past 40 years.