RISK LAB

Concentration

Concentration means too much exposure is sitting in one place. The position may be a single stock, sector, asset class, strategy, account, issuer, employer stock, or product type. The issue is not only size. The issue is whether one failure point can damage the whole plan.

Meaning

What it means

Concentration is the condition where one holding, theme, issuer, or strategy carries more influence than the rest of the account can safely absorb.

Protection

What it protects

It protects against hidden single-point failure. A portfolio can look diversified on paper but still be exposed to one market driver, company, rate move, or liquidity event.

Mechanics

How it works

Concentration risk builds when gains are left untrimmed, legacy holdings remain untouched, emotional attachment blocks review, or multiple products all depend on the same underlying risk factor.

Risk Signals

How it shows up

Look for outsized percentages, repeated exposure to the same sector, overlapping funds, employer stock, inherited positions, or client resistance to reducing one favored name.

Action

What to do

Measure the exposure, compare it to the objective, identify what happens if the position drops sharply, and decide whether the account needs trimming, hedging, documentation, or escalation.

Avoid

What to avoid

Do not call an account diversified just because it has many line items. Different labels can still point to the same risk.

Risk Review Frame

Read the risk before you approve the action

Use this topic to separate a normal decision from a risk decision. A risk decision needs facts, fit, limits, and documentation before it can be treated as clean.

  • What is the largest exposure?
  • What else depends on the same driver?
  • What happens if that driver fails?
  • Is the concentration intentional and documented?

Topic Checklist

Before you mark this complete

  • Define the risk in plain English.
  • Identify what could go wrong for the client, account, product, or market condition.
  • Connect the risk to capacity, tolerance, time horizon, liquidity, or documentation.
  • Choose whether the situation is clean, incomplete, needs adjustment, or requires escalation.
  • Confirm the review action before moving to the next topic.

Ready Check

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