Glossary
Concentration Risk
Concentration risk arises when a large part of a portfolio is concentrated in a single investment, sector, region or debtor. If that position loses value, this has a disproportionate effect on the overall portfolio. Concentration risk is the opposite of diversification. It can also arise unintentionally, for example through shares of one's own employer or a dominant property.
At a glance
01
Concentration risk exists when a large part of the portfolio is concentrated in a single position.
02
Losses on that position have a disproportionate effect on the overall portfolio.
03
Concentration risk can be reduced through diversification.
Frequently asked questions
Concentration risk often builds up gradually, for example when someone holds many shares of their own employer or when a single property makes up the majority of their wealth. A strong concentration in one sector or currency can also be a concentration risk. A regular overview of the overall wealth structure helps to identify such concentrations.
Concentration risk can be reduced through diversification, that is, by spreading wealth across several investments, sectors and regions. It is important to look at total wealth, not just individual portfolios. This makes concentrations visible and allows them to be spread more broadly.
