Everyone seems to know someone who struck gold by betting big on a single stock.
It might be a US tech name like Nvidia or Tesla. It could be a well-known Singapore stock that surged at just the right time. These stories travel fast — on WhatsApp chats, Telegram groups, Reddit threads, and TikTok videos — and they plant a dangerous idea:
“If I can just find the right stock, diversification is unnecessary.”
This belief sits at the heart of what many retail investors underestimate: concentrated investing risks.
Concentrated investing can work — but only under very specific conditions. For most retail investors, it introduces far more downside than they realise, especially when driven by recent performance rather than long-term planning.
This article breaks down why concentrated investing is so tempting, where it often goes wrong, and how retail investors can participate in growth without putting their entire financial future on a single bet.
What Is Concentrated Investing?
Concentrated investing means allocating a large portion of your portfolio to a small number of stocks — sometimes even just one.
Examples include:
- Putting 60–80% of your portfolio into a single US stock
- Holding only two or three “high-conviction” names
- Going all-in on one sector such as AI, EVs, or banking
The appeal is obvious: if the stock performs exceptionally well, returns can be dramatic. But so can losses.
Understanding concentrated investing risks starts with recognising how different this approach is from diversified investing, where risk is spread across many companies, sectors, and asset classes.
Why Concentrated Investing Feels So Compelling
1. Recent Market Winners Distort Expectations
Over the past decade, market returns — especially in the US — have been driven by a surprisingly small number of stocks. Nvidia, Apple, Microsoft, and a handful of others account for a large share of overall gains.
When investors look backward, it seems obvious:
- “I should have just bought Nvidia.”
- “Why own 500 stocks when 5 did all the work?”
This backward-looking logic ignores an important truth: winners are obvious only in hindsight.
2. Social Media Amplifies Success Stories
Retail investors are constantly exposed to winning narratives:
- A friend who doubled their portfolio
- A Reddit post about early retirement
- A YouTube thumbnail promising “life-changing returns”
What’s missing are the quiet failures. No one posts about the concentrated bets that didn’t work.
This creates a distorted picture of reality and downplays concentrated investing risks such as drawdowns, emotional stress, and permanent capital loss.
3. Familiarity Creates False Confidence
Many investors concentrate because they feel they “know” a company:
- They use its products
- They see it everywhere
- They understand its story
But knowing a brand is not the same as understanding:
- Valuation
- Competitive pressure
- Regulation
- How much future growth is already priced in
Familiarity lowers perceived risk — often incorrectly.
The Reality Most Retail Investors Discover Too Late
Concentration Means Less Room for Error
Professional fund managers with teams of analysts struggle to consistently outperform the market with concentrated portfolios. Retail investors face additional disadvantages:
- Less time
- Less information
- More emotional decision-making
When you concentrate, you don’t just need one winner — you need to avoid being wrong.
That’s where concentrated investing risks become most visible.
Volatility Feels Different When You’re All-In
Imagine 70% of your portfolio is in one stock.
A 30% drop doesn’t just hurt — it changes how you think:
- You check prices more often
- You second-guess your thesis
- You feel pressure to act
Even if the business is fine, emotions can force poor decisions. Diversification reduces this psychological strain.
Performance Chasing: The Silent Portfolio Killer
Many retail investors adopt concentrated strategies after strong performance.
Examples include:
- Buying US tech stocks after a multi-year rally
- Going heavy into AI when headlines peak
- Adding to a stock simply because it keeps rising
This behaviour is known as performance chasing, and it significantly increases concentrated investing risks.
When expectations are already high, even good results may not be enough to support further gains.
Why “Boring” Assets Matter More Than Investors Admit
Singapore Savings Bonds (SSBs)
SSBs are often dismissed as dull — and that’s exactly their strength.
They provide:
- Capital protection
- Predictable returns
- Stability during market stress
For retail investors, SSBs reduce the need to make desperate decisions during downturns. They act as a financial anchor when equity markets are volatile.
Gold as a Portfolio Stabiliser
Gold doesn’t generate income, but it behaves differently from equities.
Gold often performs well during:
- Inflationary periods
- Market stress
- Geopolitical uncertainty
As part of a diversified portfolio, gold can offset some concentrated investing risks by reducing overall volatility.
Diversified ETFs: Quietly Effective
Broad-based ETFs don’t offer bragging rights. What they offer instead is consistency.
They:
- Reduce single-stock risk
- Capture long-term economic growth
- Remove the need for constant decision-making
For many retail investors, diversified ETFs outperform their own stock-picking efforts over time.
A Practical Alternative: Core and Satellite Investing
Rather than choosing between concentration and diversification, many investors benefit from combining both.
A common structure:
- Core portfolio: diversified ETFs, SSBs, bonds
- Satellite positions: smaller, high-conviction stock bets
This approach allows participation in upside while limiting downside — a more realistic way to manage concentrated investing risks.
Risk Tolerance Changes With Life
A 25-year-old with stable income can take more risk than:
- Someone nearing retirement
- Someone planning a major purchase
- Someone relying on portfolio income
Life events can force sales at bad times. Diversification provides flexibility when timing is not in your control.
The Long-Term Reality of Wealth Building
Wealth is rarely built by one perfect decision.
It’s built by:
- Staying invested
- Avoiding irreversible mistakes
- Managing risk consistently
Concentrated investing can deliver spectacular results — but it demands precision, discipline, and emotional control that most retail investors underestimate.
Understanding concentrated investing risks isn’t about avoiding opportunity. It’s about ensuring one bad decision doesn’t undo years of progress.
Final ThoughtsI
If you’ve benefited from a concentrated bet, that’s great. Just don’t confuse a good outcome with a repeatable strategy.
Ask yourself:
- Can I live with a 40% drawdown?
- Am I relying on past performance?
- Does my portfolio survive being wrong?
The goal isn’t to make the boldest bet. It’s to build a portfolio that lasts.