Trading term
What is Concentration?
Concentration is how much of your portfolio sits in one company, one sector or one country. It's the mirror image of diversification — the more concentrated you are, the more one outcome decides your result.
Every portfolio is concentrated in something. The question is what, and how much. You can measure it three ways: the share of your money in a single company, the share in one industry, and the share in one country's market. Take the biggest of those three and you've found the bet your portfolio is really making.
Concentration cuts both ways, which is why it isn't automatically a mistake. If the thing you're concentrated in does well, you get more of that result than a spread-out portfolio would. If it does badly, you get more of that too. It magnifies whatever happens. A 40% position in one company doesn't have a slightly wider range of outcomes than a 5% position — it has eight times the effect on your total.
What separates a deliberate concentration from a dangerous one is whether anyone chose it. Concentration that accumulates by accident — shares from an employer, a fund bought twice under different labels, a home market that quietly grew to most of the account — is a bet nobody placed. Write down your largest exposure and what fraction of the total it is. If the answer surprises you, it wasn't a decision.
For example
You have $20,000 spread over six funds and feel diversified. Then you add up how much of each fund sits in technology companies: $9,000, or 45% of everything you own. No single line item looked large. The sector bet was assembled out of six of them.
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Explore Premium →Why it matters to you
Concentration is what decides how bad your worst year can get. Broad market falls recover on a schedule nobody controls but most people can wait out; a single company can fall and never come back. It also interacts with when you need the money — a concentrated portfolio you have to sell from in a bad year turns a paper loss into a real one.
⚠ Concentration hides at the sector and country level
Most people check whether any one company is too big a slice and stop there. The concentrations that catch people out sit one level up: a portfolio with no position above 4% that's still 60% in one industry, or 85% in one country. Run the check on all three levels, because none of them shows up as a big line in your account.