Concentrating in one asset
The mistake
Putting everything into one stock, one building, one coin or one country is dangerous. If that single bet goes wrong, so does all your money — and unlike a bad year for a diversified portfolio, there is no averaging-out to rely on.
How to recognise it in yourself
- One position is worth more than all your others combined.
- Your employer's shares are a large part of your savings, so your salary and your investments depend on the same company.
- You could not name three things that would have to go wrong for that position to fall by half — because you have never asked.
What it costs if you leave it
Diversification does not raise your expected return; it removes the outcomes you cannot survive. A diversified fund that falls 30% in a bad year has historically recovered given time, because the businesses inside it are not all failing at once. A single company that falls 30% may be on its way to zero, and no amount of patience fixes a company that no longer exists. The asymmetry is the whole argument.
The fix
Spread money across different assets, sectors and currencies deliberately. It is boring on purpose — the goal is that no single bad outcome anywhere can sink the whole portfolio.
A concrete example
A portfolio split across a broad index fund, a government bond and a small allocation to a single company can absorb that one company falling 50% and still be fine overall; a portfolio that is 100% that same company falling 50% has genuinely lost half of everything.