What Is Concentration Risk?
The added risk of having too much of a portfolio invested in a single stock, sector, or asset.
The Full Definition
Concentration risk is the danger of having a large share of your portfolio tied to the fate of a single company, sector, or asset class. It's the opposite of diversification: a concentrated position can deliver outsized gains if it performs well, but it can also inflict outsized damage if that single bet goes wrong. Concentration risk often builds up by accident — a winning stock keeps growing as a share of the portfolio simply because it's appreciated, not because the investor deliberately decided to increase the bet.
Real-World Example
An employee who holds most of their net worth in company stock through a 401(k) match and stock options has significant concentration risk — if the company struggles, both their job and their savings are at risk simultaneously.