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Portfolio Concentration Risk Is Real

If nothing else, the stock market – in the short term – is all about trends. As such, certain sectors tend to lead for a while, while others languish. Whether that’s due to the business cycle, economic growth/decline or other factors, there’s no doubt that for some periods of time, some sectors and industries simply perform better. Over the last decade or so, it’s been the major technology sector. For investors in tech, this has been wonderful news. However, the trend towards tech outperformance has created a potential problem in most portfolios.

We’re talking about concentration risk.

Thanks to the fact that tech has led for so long, many of the major indices are now very overweight in the sector, which is a huge issue now that tech has begun to lag. And it’s not just tech; there have been plenty of periods of time when other sectors have gotten out of hand. For investors, managing concentration risk is key to keeping all their gains.

Be sure to check out our Portfolio Management Channel to learn more about different portfolio rebalancing strategies.

Concentration Risk: The Basics

Tech’s Accession

Concentration of top 10 stocks in S&P 500

Regulating Concentration Risk In Your Portfolio