Overconcentration
“Overconcentration” is an investment term which expresses the old adage, “don’t put all your eggs in one basket.”
Examples of overconcentration include an account that is invested only in:
- One stock or a few different stocks
- A single sector of the economy (i.e. investing only in gold or precious metals)
- One investment asset class (such as purchasing just stocks, rather than stocks and mutual funds)
- Without a portfolio spread across multiple investment avenues, the investor could faces dire economic consequences. For example, if an investor puts all her money in a single startup company, and the company goes out of business, the investor loses 100% of his/her account.