Concentration risk is a topic that often gets a lot of attention, but it may not be as big of a concern as some people think. While it’s important to be aware of the potential risks associated with having too much of your portfolio invested in a single asset or sector, it’s also important to keep things in perspective.
It’s true that putting all of your eggs in one basket can be risky. If that asset or sector takes a hit, your entire portfolio could suffer. However, it’s also worth noting that diversification can help mitigate this risk. By spreading your investments across different assets and sectors, you can reduce the impact of any one investment performing poorly.
Additionally, concentration risk may be overhyped in some cases. While it’s important to be mindful of where your money is invested, it’s also important to remember that not all concentrated portfolios are inherently risky. Some investors may intentionally choose to concentrate their portfolios in a particular asset or sector because they believe in its long-term potential.
Ultimately, the key is to strike a balance between diversification and concentration. By carefully considering the risks and rewards of each approach, investors can make informed decisions that align with their financial goals and risk tolerance.