Has your portfolio become too risky without you realizing it?
Sanjib Saha
15 May 2025
Most people start their financial journey without much formal education in investing or risk management. They set out with good intentions, but little strategic understanding. As they earn and build wealth, they often pay little attention to hidden risks quietly creeping into their portfolios. This isn’t usually a problem for those who follow basic investment guidelines from the start — but many don’t, and over time, the hidden risks can become costly.
One common risk is the unintentional concentration of investments — when too much of your money ends up tied to a single company, a single industry, or a single property. Usually, this happens because that particular investment did very well and quietly grew into the largest piece of the portfolio. Ironically, the investment that made them wealthier also puts that wealth at risk. Without deliberate planning and diversification, a person’s financial future may hang precariously on the fate of just one thing.
How Concentration Happens Without You Realizing It
The most common example is employer stock. Many people receive shares through compensation packages — like stock grants, employee stock purchase plans, or bonuses paid partly in stock. Often, these shares sit untouched in a brokerage account because people feel optimistic about their company, are too busy to think about it, or simply procrastinate. Fast-forward 10 or 20 years, and those once-small amounts can balloon into the largest part of their wealth.
In the early stages, stock-based compensation can actually be helpful: it acts like a “forced savings” plan and gives people at least a narrow exposure to the stock market, without requiring much decision-making. But it doesn’t take long before these positives are outweighed by the risk of being too concentrated in one place.
Why Concentration Is Dangerous
Betting too heavily on a single company is risky, no matter how good that company seems. A stock might underperform, drop and never recover, or — in worst cases — become worthless. Company-specific risks include changes in industry regulation, competition, management mistakes, technology obsolescence, broader economic issues affecting that sector, or even geo-political issues affecting the region. Even strong companies can stumble, and history has plenty of examples where once-iconic businesses fell dramatically in a short time.
Once investors realize most of their eggs are in one basket, it can still be hard to act. Two big reasons for inaction are recency bias (believing good recent results will continue) and tax worries (selling a big position could trigger hefty capital gains taxes). Unfortunately, ignoring the risk doesn’t make it go away.
It’s Not Just Company Stock
Concentration can also sneak in through other means. Maybe an early investment in a tech stock soared and now dominates your portfolio. Maybe a real estate property’s value tripled and now makes up most of your net worth. Any time a large chunk of wealth is tied to one thing, the risk increases.
What To Do About It
The first step is awareness and recognition. Review your full financial picture at least once a year — including retirement accounts, unvested company stocks, real estate, and any private investments. If any single investment grows beyond about 10–15% of your total net worth, it’s a concern. If it’s 40% or more, it’s a flashing red flag. Above 60% – it’s a blaring alarm coming out of your portfolio.
First thing first- stop adding more to the concentrated position and make a gradual plan to reduce it over time. If tax consequences from selling are manageable or acceptable, it’s usually smart to trim the position sooner than later and reinvest into more diversified assets. If the tax hit feels too big, execute the plan over a few years, but before it’s too late.
Final Thought
A few lucky wins early on can feel like validation, but past success doesn’t guarantee future safety. Once your portfolio becomes meaningfully large, protecting your wealth becomes even more important than growing it further. Failing to diversify can turn today’s success into tomorrow’s disaster — and it could take years or decades to recover.
Being mindful of concentration isn’t about being pessimistic or fearful. It’s about giving yourself the best odds for lasting financial security.
This article is part of the Big Mistakes series