The Key Difference Between Portfolio Diversification vs Portfolio Concentration

portfolio diversification vs portfolio concentration
Feature	Portfolio Diversification	Portfolio Concentration
Definition	Spreading investments across various assets/sectors to reduce risk.	Focusing investments in a few assets or sectors for potential higher returns.
Risk Level	Lower risk through risk spreading.	Higher risk due to lack of spread.
Return Potential	Generally moderate returns.	Potential for higher returns if chosen investments perform well.
Volatility	Lower volatility due to asset spread.	Higher volatility from concentrated holdings.
Management Complexity	More complex; requires monitoring many assets.	Less complex; focused on fewer assets.
Suitability	Ideal for risk-averse investors.	Suitable for risk-tolerant investors seeking high rewards.
Examples	Investing in stocks, bonds, real estate, and commodities.	Investing heavily in one sector or stock.
Impact of Poor Performance	Limited impact due to diversification.	Significant impact if chosen assets perform poorly.
Return Consistency	More consistent returns over time.	Returns can be highly variable.
Investor Focus	Broad market or asset exposure.	Focused on specific companies or sectors.
Liquidity	Varies depending on assets.	Depends on concentrated holdings.