Question of the Week – What is concentration risk?

This week the risk series shines the spotlight on concentration risk.

An investor takes on concentration risk when they do not diversify their investments. We talked about diversification in a previous blog post. Concentration risk is the risk of loss because all or most of your money is in one investment or one type of investment. Diversification spreads the risk over different types of investments helping you to avoid concentration risk. By concentrating your investments, you risk losing a large amount, or all of your investment if it declines in value.