As artificial intelligence (AI) and large-cap technology stocks continue to dominate economic growth patterns and market headlines, the conversation around portfolio concentration risk has grown louder, and often more alarmist. But according to Jeffrey Fratarcangeli, founder and CEO of Fratarcangeli Wealth Management, the underlying principles haven’t changed, even if the speed of wealth creation has.
“It is true that AI and tech have created significant wealth in a short period of time,” Fratarcangeli said. “However, that does not change how concentration risk works.”
Fratarcangeli, who has managed portfolios for high-net-worth clients for more than three decades, says the real risk emerges when success itself goes unchecked, particularly when a narrow group of companies or a single sector begins to dominate an investment portfolio.
When performance becomes a risk factor
Extended periods of strong performance can quietly distort portfolios, especially in markets driven by innovation cycles.
“I have been helping clients maximize their portfolios since the mid-’90s,” Fratarcangeli said. “Throughout that time, I have seen bubbles grow, and I have seen stocks that were doing very well all of a sudden drop like a lead balloon.”
While he does not believe markets are currently at that breaking point, he cautions that investors need to stay aware of how much exposure they are carrying, not just within the broader technology sector, but within individual companies.
“You need to be cognizant of your portfolio being overly emphasized in one sector, let alone one company,” he said. “Without proper portfolio diversification, you could eventually be facing a day of reckoning.”
Speed of wealth has changed, discipline has not
Despite how quickly tech winners can emerge today, Fratarcangeli rejects the idea that portfolio discipline needs to be reinvented.
“I don’t think the strategy has changed at all,” he said when asked how he thinks about concentration risk today versus a decade ago.
What has changed, he notes, is investor behavior. When one industry or individual company dominates performance rankings for multiple years, it often draws in capital at precisely the wrong moment.
“For example, technology has been the best-performing sector for two consecutive years,” Fratarcangeli explained. “Historically, when a particular sector has been at the top year over year, it has not continued to maintain that position.”
When an industry is at the top for a long period of time, it often pulls in more risk-averse investors driven by fear of missing out, and timing mistakes tend to follow.
“Investors jump in because they fear that they’re going to miss out, so they buy in when it costs them the most,” he said.
Liquidity is the counterbalance to portfolio concentration
In fast-moving, innovation-driven markets, liquidity plays a critical, and an often underestimated, role.
“If you get into a position where you need more liquidity than you thought you did, and the market is free-falling, you will be forced to sell at the worst possible moment,” Fratarcangeli said.
To avoid that scenario, he emphasizes advanced planning rather than reactive decision-making.
“Pre-planning the amount of liquidity you have is critical,” he explained. “Money you know you will need in the next couple of years should not be exposed to market risk. Money you will not need for three years or longer can take on risk, but it still needs to be diversified.”
Liquidity, he added, allows investors to stay disciplined when volatility hits, rather than becoming forced sellers.
What discipline actually controls
A structured approach to concentration risk is not about predicting the next market downturn. It is about controlling portfolio structure before market volatility or investor emotion forces a decision.
From a planning perspective, Fratarcangeli believes that discipline helps set boundaries before emotion enters the picture.
“As a general rule, investors should make sure they don’t own more than 5% of any one company in their total portfolio,” he said. “And they need to make sure they don’t have more than 20 to 30% in any one sector at a given time.”
That discipline, he explains, means building intentionally balanced portfolios rather than allowing a handful of market darlings to dominate exposure. A well-balanced portfolio combines high-performing sectors with areas that may be out of favor, less talked about or temporarily lagging.
“Sometimes investors have to rebalance their portfolios when their investments are too heavily weighted toward a single sector or company,” Fratarcangeli said. “That is one of the best ways to manage risk over time.”
A familiar risk in a new spotlight
AI and technology have accelerated wealth creation, but they have not rewritten legacy market behavior. For Fratarcangeli, portfolio concentration risk remains a behavioral issue more than a technical one, driven by chasing performance, ignoring liquidity and allowing success to distort structure.
“The fundamentals of managing portfolio concentration and risk have not changed,” he said. “It all comes down to how well people stay disciplined when the market is performing well.”
For more insight from Jeffrey Fratarcangeli, visit www.fratarcangeliwealth.com.
