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  1. What Is Overconcentration?
  2. What Is Asset Allocation?
  3. What Is Diversification?
  4. How Do I Know if My Portfolio Is Overconcentrated?
  5. What Should I Do if My Portfolio Has Lost Value Due to Overconcentration?

What Is Overconcentration?

Overconcentration occurs when your broker fails to properly diversify the investments and holdings in your portfolio. An investment portfolio can be Overconcentrated in either specific asset classes (i.e. equities, bonds, mutual funds, cash, etc.) or specific sectors (i.e., technology, health care, automotive, consumer goods, etc.).

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What Is Asset Allocation?

Asset allocation is a fancy term for the overall makeup of your investment portfolio. The asset allocation of your portfolio should be based on your unique investment profile, which includes your time horizon, your risk tolerance, and your individual investment objectives. Asset allocation is a critical factor in ensuring that a portfolio is properly diversified.

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What Is Diversification?

Diversification is a risk-management strategy that involves adding different types of securities and investments to your portfolio to protect against the downside risk of any one specific asset class or sector. In theory, a diversified portfolio will experience higher long-term yields with less volatility compared to a portfolio concentrated in a particular asset class or sector.

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Explained in the Real World

Let’s say you open a brokerage account with XYZ Brokerage Firm and the first securities you purchase are ten (10) shares of Microsoft. After you buy the shares, your portfolio is 100% concentrated in Microsoft, meaning if the share price of Microsoft goes up 5%, then the value of your portfolio also goes up 5%. If the share price of Microsoft drops by 5%, so does your portfolio. Effectively, your portfolio is overconcentrated in both Microsoft and the technology sector.

How Do I Know if My Portfolio Is Overconcentrated?

There are several telltale signs that your portfolio is Overconcentrated in a particular security or sector. Do you only have a certain type of security in your portfolio? Do you only have shares of a certain company in your portfolio? Do you only have shares from a certain sector (like oil and gas, technology, or finance) in your portfolio? If your portfolio has lost value and you have answered “yes” to any of these questions, your losses may be a result of Overconcentration.

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What Should I Do if My Portfolio Has Lost Value Due to Overconcentration?

If you believe that your broker failed to properly diversify your portfolio or failed to warn you of the risks associated with an Overconcentration in your portfolio, you should contact an experienced Securities Law attorney, like the one’s at Malecki Law.

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Testimonials From Former Clients
I highly recommend Jenice and her team at Malecki Law. I had a challenging, and lengthly case. Jenice was professional, very knowledgeable, and a pleasure to work with. She managed to make the process far less stressful during a very difficult time. They care about their clients, and it definitely shows. Mario
Jenice is truly a miracle worker and one of the top securities lawyers. She handled a very difficult case for us, displaying her legal knowledge, intelligence, and savviness throughout the process. I cannot recommend her enough. The quality of work from her team rivals that of corporate law firms. She was always available, extremely professional, and made sure to know all the details of the case. We were very fortunate to have been referred to Jenice and highly recommend her for any securities related legal issues. Nathan A.
An excellent professional who represented us in trial regarding a bank fraud, an unexpected and difficult time. A professional that worked hard, persevering and who stood toe to toe against firms that had a team of excellent lawyers backing them up. Her unflinching determination really stands out, it makes you feel you have someone who really cares about trying to recover what you lost from the people that wronged you. Salomon Levi
It is difficult to thank you in words when gratitude comes from the heart, so I will try to link feelings with writing. It is essential for us to mention your excellence as a professional, your aptitude on legal fields, and your unavoidable persistence. All of these virtues that elevate the profession you exercise in such an admirable way, go hand in hand with your sense of ethics, your human warmth and the transparency in your actions. To sum up, thank you for being a listening ear and for having the right word while transmitting information about the legal process. Having you as our representative during such an adverse situation was a privilege and enough reason for our eternal gratitude. Angeles Aparain
To say that my securities litigation was complex would be a severe understatement. With multiple parties involved and spanning many years, trying to understand the issues was daunting to say the least. Jenice and her team broke down the transactions by segment and by party uncovering every hidden expense. In the end, I was more than happy and could not thank Jenice and her team enough. I would not hesitate to recommend Jenice to anyone. She is highly professional, incredibly knowledgeable, well connected to industry experts, has a tireless work ethic and is so pleasant and easy to communicate with. Five stars for sure! Andrew Loughrane