A portfolio is a combination or collection of several investment instruments formed to meet a general investment objective. Based on its composition, a portfolio can be classified into a Concentrated Portfolio and a Diversified Portfolio.

Concentrated Portfolio

As the name suggests, its composition will be concentrated on stocks in the same sector and/or with similar characteristics. The main advantage of a concentrated portfolio is its high potential return, but with relatively higher risk. This is because investment portfolios with the highest performance are usually not those that are widely diversified, but those concentrated in a few industries, market sectors, or asset classes that substantially outperform the overall market.

However, the real question for investors is the extent to which they should allocate their composition between a concentrated and diversified portfolio. Aggressive investment with high risk naturally has a larger concentration component compared to diversification. Of course, every investment decision should return to the investment objective, level of risk tolerance and choice of investment strategy.

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