Concentrated Stocks Risks and Reward
A single company may represent a considerable portion of your wealth because of the proportional value the stock contributes to your overall investment portfolio. When one company’s allocation skews your portfolio dramatically away from proper diversification, it should be considered a “concentrated position” and it can impact your overall risk tolerance and blind you to other opportunities for growth or income.
Concentrated positions typically arise through equity based compensation, the inheritance of a sizeable single stock position, or from market appreciation. Ironically, the very asset responsible for helping to create wealth might eventually become one of the biggest risks to achieving your financial goals and peace of mind.
Investors might accumulate wealth with the right concentrated stock position, but they will keep their wealth with diversification.
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