by MIKE MCGILVARY, AIF® Financial Advisor
Simply put, Concentration Risk is having too much of your net worth tied up in one investment. The investment could be an individual stock – we see this a lot with equity compensated folks that receive stock options.
Another example could be real estate which is also common.
At Marzano Capital Group, our general rule of thumb is to have no more than 10-15% of your net worth in any one investment or asset class. This can be a challenge as everyone’s situation is different, but here are three ways you can help mitigate wealth concentration, in our opinion:
Take the emotion out of it! We have seen many folks become attached to a certain company stock and subject themselves to more risk than they really should.
Work with a team of financial advisors including your tax professional. Coming up with a schedule of diversifying your wealth and the possible capital gains associated with this is something we do for many of our clients while working in tandem with their tax professionals, of course.
Ongoing monitoring of your personal balance sheet. Overconcentration is typically not a one-time issue, especially for investors that have amassed a large amount of equity in their companies. We feel that continuous monitoring is very important from a net worth diversification point.
We hope this article was helpful, please reach out to our office with any further questions! Thanks so much.
Securities offered through LPL Financial, Member FINRA/SIPC. Marzano Capital Group is another business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance LLC, a registered investment advisor. Independent Advisor Alliance is a separate entity from LPL Financial.