With the equity markets continuing to rise, we are seeing more and more individual names soar quicker than ever. This is causing net worths to skyrocket while potentially leaving portfolios imbalanced. Throughout my years working with clients, I have seen individuals that have made their fortune with one stock (YES, mega cap tech), and I have seen others lose it all investing in a momentum stock that goes sideways.
Whether you obtain your stock from employment at a publicly traded company, a well-timed investment, or a long-term portfolio holding, you’re exposed to concentration risk. Depending on where you are in your financial journey, the risk could be more meaningful than you think.
Rule of Thumb—do not have more than 10-20% of any one holding in your portfolio.
If you are a 25-year-old with $30k invested in Nvidia and $10k in the S&P 500, the risk is much lower. Time is on your side, the portfolio is relatively small, and a setback will likely not derail your financial future.
However, if you are 45 with $30 million in Nvidia and $10 million in a diversified portfolio, I will be giving you different advice. Much of your financial future is tied to one stock you are putting yourself at a much greater risk of writing a drastically different financial future should that stock take a turn.
Diversification is a term we hear from wealth advisors all the time (rightly so). It may sound generic at times, but this does not mean we want you to sell. Rather design a strategy considering capital gains tax, emotional attachment, and restrictions within employee stock.
Whether your stock came from long-term employment, inheritance from a loved one, a lucky trade or conviction in a groundbreaking company, make sure your wealth strategy evolves as you and your portfolio grow. Our goal is to grow your portfolio while keeping the wealth you have created.
Disclosure:
Investment Advisory Services offered through Expressive Wealth, LLC. All investing involves risk, including the potential loss of principal. Market volatility may significantly impact the value of your investments. This communication is provided for informational purposes only and should not be construed as personalized investment advice or a recommendation of any particular security, strategy, or investment product. Information has been obtained from sources believed to be reliable, though not independently verified. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Expressive Wealth research and professional experience and are expressed as of the date of this report. We recommend consulting with a qualified financial adviser to develop a strategy that aligns with your financial goals and risk tolerance.