GLOSSARY TERM
Concentration Risk
Concentration risk means putting too much of your money into one investment, one company, one country or one type of asset.
What does this mean in practice?
If a large part of your portfolio depends on just one area, your results can be heavily affected if that area performs badly. You may do very well when it rises, but you can also lose much more if it falls. This is why spreading your investments across different holdings is important.
Example
If most of your money is invested in one technology stock and that company has problems, your portfolio could drop sharply. If the same money had been spread across many companies and markets, the damage would likely be smaller.
Why it matters
Long-term investing is not only about growth. It is also about avoiding unnecessary risk. Reducing concentration risk helps make your portfolio more stable and less dependent on one single outcome.
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