Investing term

What is Concentration risk?

The risk that one position, sector, or country represents enough of the portfolio that a single bad outcome dominates returns.

Concentration risk is the danger that a single position, sector, or country makes up so much of your portfolio that one bad outcome dominates your results. Diversification exists to defuse it. The most common form is holding too much of your own employer's stock — tying both your paycheck and your savings to one company's fate.

For example

If 40% of your portfolio is one tech stock, a single bad earnings report can sink your whole year — that's concentration risk in action.

Concentration risk is taught hands-on in Stage 16 — Portfolio Construction.

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Related terms

Broad ETFAn ETF that tracks a wide market index — total US stock market, total international, total bond market.Position sizeThe fraction of the total portfolio invested in a single holding.RebalanceSelling some of what's grown most and buying more of what's grown least to return the portfolio to its target weights.RegionA geographic grouping of equity exposure — US, developed-ex-US, emerging markets, etc.
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