MARKET COMMENTARY

The Cost of Concentration

01.27.2021

SUMMARY

Conventional wisdom suggests that a diversified portfolio is more advantageous to investors. Yet, some consider concentration to be an attractive approach if used responsibly. Indeed, many respected investors manage a highly concentrated portfolio because they believe it will support their long-term return goals. However, highly concentrated portfolios often result from unconscious investment decisions. This may imply that a portfolio composed of a single asset can introduce risks for an investor, namely volatility, which represents a significant cost to portfolio growth over long periods. In this white paper, Jack Tobin, Research Associate, and John Raus, Senior Research Analyst, share their analysis that suggests selling the single asset position and reinvesting the after-tax proceeds in a diversified portfolio is expected to generate a higher portfolio value at the end of the long-term investment horizon.

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This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.

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