Concentration risk
InvestingDefinition
Risk arising from over-exposure to a single stock, sector, geography, or factor. Most single-stock blow-ups (Enron, Lehman, FTX) hit employees with concentrated holdings hardest.
Standard mitigation: rule-of-thumb caps on single-position weight (5-10%), sector caps (25%), industry caps. Many wealth managers offer "exchange funds" to swap concentrated stock for diversified portfolios with deferred capital gains.
Standard mitigation: rule-of-thumb caps on single-position weight (5-10%), sector caps (25%), industry caps. Many wealth managers offer "exchange funds" to swap concentrated stock for diversified portfolios with deferred capital gains.