A concentrated equity position occurs when an individual stock makes up more than roughly 20% of your total portfolio. The danger is that the performance of your entire portfolio may be significantly affected by that stock, and as a result you may be exposed to more risk than you are comfortable with. This concept holds for sectors and industries as well as individual stocks. You don’t have to look back any further than the fall of Enron or the tech wreck of 2000 to see how concentration in any one company, industry, or sector can wreak havoc with your returns. How do you acquire a concentrated position? Often it results from receiving shares of your company’s stock in your 401(k) plan or from receiving shares in an inheritance. When you review your portfolio, you should be aware that in addition to individual equities, the concentration may be less visible but still lurking in your 401(k), IRA, or mutual funds. Do yourself a service and check them all. It may be time to rebalance.

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   January 7th, 2010 at 2:27 am

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