Eileen is involved in the firm’s securities practice and has over a decade of experience in the legal world. She received her law degree from American University in 2005.
Over-concentration occurs when your portfolio is too heavily focused on one particular investment. A few examples of investment over-concentration include:
- Investing 100% of your portfolio in gold.
- Purchasing only one stock rather than multiple mutual funds.
- Investing all of your money in oil.
Any time a broker or investment professional fails to diversify your portfolio across multiple avenues of investment, you are in danger of investment over-concentration.
Did you lose money because your broker over-concentrated your portfolio?
The Dangers of Over-Concentration
Any broker or financial institution should know the most fundamental rule of investing: diversify. As the old adage states, “never put all your eggs in one basket.” In other words, you need to spread out your investments to mitigate your risks. If you invest in multiple “baskets,” should something go wrong with one investment, you still have the others to help keep you afloat.
On the other hand, imagine what would happen if you invested all in a single stock. If the company hit hard times and the stock took a turn for the worse, you would be in danger of losing all your money. To do so would not only be unwise—it would be downright foolish.
Of course, as a novice investor, no one would expect you to know this, right? Instead, you hire a broker or financial institution to help avoid these pitfalls. Essentially you’re paying people a commission to ensure that you make wise investment decisions. But what happens when your broker makes these imprudent decisions?
Are You a Victim of Investment Over-Concentration
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