Concentration risk occurs when a significant portion of your portfolio is allocated to a single holding or a small number of holdings. This creates dependency on the performance of those specific investments.
If 60% of your portfolio is in a single company stock, a -20% decline in that stock would reduce your total portfolio value by -12% — regardless of how the rest of your holdings perform.
When one position dominates your portfolio, your returns become highly dependent on that single investment's performance.
Company-specific events (earnings, lawsuits, management changes) can have outsized effects on your total portfolio value.
A 50% loss requires a 100% gain to recover. Concentrated positions amplify this asymmetry.
Concentration can occur at different levels within a portfolio:
Position Concentration
A single stock, ETF, or fund making up a large percentage of your portfolio.
Sector Concentration
Multiple holdings in the same industry (e.g., all tech stocks).
Geographic Concentration
All investments in a single country or region.
Asset Class Concentration
100% in equities with no fixed income, commodities, or other assets.
A large position in a diversified fund is structurally different from a large position in a single stock:
✓ Broad Market Funds
Total market ETFs, S&P 500 funds, and global index funds contain hundreds or thousands of underlying holdings, spreading risk internally.
✗ Individual Securities
Single stocks or narrow sector ETFs have no internal diversification — company-specific risk is fully borne by the investor.
A portfolio with 80% in a total market index fund is structurally different from one with 80% in a single company stock, even though both have a "concentrated" position.
Equily's Portfolio Rating (EPR) considers concentration as part of the overall portfolio analysis:
Position sizing contributes to the diversification component of your EPR score.
EPR distinguishes between broad market funds and individual securities when evaluating concentration.
Note: Equily surfaces this information to help you understand your portfolio's structural characteristics. This is educational analysis, not financial advice.
Large positions mean your portfolio's performance is tied to specific investments.
A large position in a diversified fund is structurally different from a large position in a single stock.
Concentration can occur by position, sector, geography, or asset class.