Concentration risk is the investing equivalent of ‘putting all your eggs in one basket’, it is the risk of holding a portfolio tilted heavily towards certain assets, sectors or countries. It can lead to wilder swings in returns compared to a more diversified approach. Perhaps the first piece of advice investors receive in their journey is to construct a balanced portfolio which will provide smoother long-term returns, but this has become increasingly trickier than it seems. Whether you have hand picked stocks or even invested in a broad index your portfolio is likely suffering from an increasing amount of concentration risk. Is the S&P 500 diversified? Well, not really… since it is a market capitalisation weighted index, larger companies have a heavier impact on the index performance (as opposed to an equal weight index, where all companies have the same impact on performance). So, perhaps unintuitively, the go-to index for passive investors of 500 US stocks suffers from significant concentration risk....