The Investment Concentration table offers you visibility into your portfolio that can help you evaluate the diversification of your assets and identify market segments or investments in which you may be too heavily concentrated. Portfolios that are too heavily concentrated in one area run the risk of decreasing in value rapidly if the market value of a single asset declines. On the other hand, investing heavily in one investment or a single market segment that's experiencing an upward trend can potentially be beneficial. It's important to research each investment and determine your personal level of risk tolerance before you choose your investing strategy.
With the Investment Concentration table, you can easily identify areas of your portfolio that may be unintentionally duplicated in a specific investment. For example, let's say you own stock XYZ and you also own exchange-traded fund ABCD. In this case, stock XYZ is one of the primary holdings of fund ABCD and currently makes up 25% of the entire fund. If you didn't realize that stock XYZ was the primary holding in your fund, you may have thought that your portfolio was more diversified than it is currently.
The drop-down menu shown in the graphic below offers you a way to toggle between the allocation of your current portfolio and the allocation you proposed in your Action Plan Model. It can be helpful to evaluate the diversification levels of both portfolios and analyze your current status against any changes you're considering.
Limitations of the Investment Concentration Table
The Investment Concentration table does not reflect any short positions in your account or any positions that are classified as “other” (this includes option positions).
Next Step: Use your action plan to place the trades that will align your portfolio with your investment strategy.
Alternate Next Steps: After evaluating the diversification of your current portfolio and your Action Plan Model, you may decide to make updates to your proposed allocation. If that happens, you can go back to the Allocation Tool under the Summary tab.
If you're satisfied with the diversification shown in the Investment Concentration table, you can continue evaluating your current portfolio and Action Plan Model in the X-ray or Performance Review sections of the Analysis tab. Once you're comfortable with any changes you suggested through the My Action Plan Model, your trades can easily be executed from the Action tab.
Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against loss, in a down market.
The analytical tools described in this article are for information purposes only and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision.