Is Your Wealth Really Diversified: The Hidden Concentration Risks HNWIs Overlook

Holding a wide mix of assets across sectors, funds, and geographies may appear diversified at first glance. However, many High-Net-Worth Individuals (HNWIs) unknowingly carry significant concentration risk. These hidden exposures can stem from long-held legacy assets, an emotional preference for familiar investments, or a reliance on a single sector, region, or currency.

This article explains why surface-level diversification may not be enough. It explores the most common blind spots found in HNWI portfolios and introduces a structured approach that can help identify and address overexposure. This is especially relevant for internationally mobile individuals who face added complexity in their financial planning.

Where Concentration Risk Hides in HNWI Portfolios

Despite having significant wealth to diversify effectively, high-net-worth individuals can typically hold concentrated positions that could threaten their long-term financial security. Understanding these common pitfalls is the first step toward building a more resilient portfolio.

1. Over-reliance on a Single Asset Class

Many HNW investors, acting without the support of a qualified financial planner, tend to gravitate toward certain asset classes over others, typically based upon past success or familiarity:

• Equities: Frequently dominant in portfolios due to long-term return potential, some investors hold disproportionately high equity allocations that leave them vulnerable to market downturns.

• Property: Often viewed as stable and tangible yet concentrating substantial wealth in real estate (particularly within a single region) can significantly increase risk during property market corrections.

• Cash: During periods of uncertainty, excessive cash holdings may provide psychological comfort but limit long term growth potential and erode value over time as a result of inflation.

2. Geographic Bias

Geographic concentration remains one of the most overlooked risks among internationally mobile HNWIs. A UK expat might retain a substantial portion of their wealth in GBP-denominated assets despite having relocated internationally, potentially to a succession of different countries.

Examples of location-based bias:

• Home Country Bias: A systematic preference for investments in one's country of origin, often representing a disproportionate share of total portfolio value.

• Familiarity Bias: A tendency to favour well-known brands or companies, often from one’s country of origin or prior residence. This can lead to unintentional geographic clustering in a portfolio and reduce true global diversification across developed and emerging markets.

3. Sector Overexposure

Concentrating investments heavily in one industry increases vulnerability to sector-specific shocks. The 2022 technology sector correction demonstrated how even seemingly "diversified" portfolios with holdings across major technology companies experienced significant declines as companies within the same sector often moved in tandem, illustrating how sector correlation can eliminate the benefits of stock-level diversification.

4. Liquidity Concentration

A frequently overlooked risk occurs when substantial wealth becomes tied up in illiquid assets. HNWIs with significant portions of their net worth in property, private equity, or restricted company shares may find themselves unable to capitalize on market opportunities or meet unexpected liquidity needs without selling at unfavourable times.

5. Legacy Holdings and Emotional Attachment

Inherited assets, company share schemes, or long-held investments often remain untouched due to sentimental value or perceived tax complexity. These positions may remain unreviewed, which can lead to portfolio imbalances over time that can represent substantial portions of total wealth in single positions.

A Framework for Identifying Hidden Concentration Risk

Step 1: Review Correlation

Work with a qualified financial planner to assess how your holdings behave in relation to one another. Highly correlated assets may suggest that diversification is more limited than it appears.

Step 2: Map Geographic and Currency Exposure

Analyse where your assets are located and in which currencies they are held. For example, British expats holding assets in GBP may benefit from diversifying into USD and EUR-denominated holdings. This can help manage currency risk and align future income and growth assets with expected spending needs — particularly if they are currently resident in the US and plan to retire in the EU. As always, individual tax position and financial objectives should guide the approach.

Step 3: Examine Sector Allocation

Analyse whether a particular sector dominates your portfolio. Exposure across multiple industries can help reduce vulnerability to downturns in any single area.

Step 4: Run Scenario Modelling

Stress-test your portfolio against scenarios such as:

• A significant decline in one or more sectors (such as technology, real estate, or energy)

• Currency depreciation (e.g. GBP relative to CHF or USD)

• Market volatility triggered by inflation or rate hikes

Step 5: Consult a Cross-Border Planner

For internationally mobile HNWIs, the cross-border aspect of financial planning introduces an additional layer of complexity, due to the way in which different assets and the location of those assets can be taxed. For example, expats in the US need to be acutely aware of their international investments and assets being regarded as PFICs - and taxed punitively by the IRS as a result.

A dual-qualified adviser can help you to understand how tax rules across each relevant jurisdiction could impact how your portfolio is taxed, dependent on your specific circumstances.

This communication is for information purposes only and does not constitute financial, legal, or tax advice.  All content is based on current UK legislation and is subject to change. All planning arrangements should be regularly reviewed in consideration of legislative updates.  Pension regulation and tax treatment vary between jurisdictions. Any reference to UK or international pension rules is portrayed in general terms and is not intended to reflect individual circumstances. Any examples provided are hypothetical and for illustrative purpose only. Outcomes will differ based on individual circumstances and local law and regulation.  Pension transfers carry specific risks and may not be appropriate for everyone. The suitability of any transfers or investments should be assessed on an individual basis.  Past performance is not a reliable indicator of future results. The value of investments can fall and rise, and you may not get back the amount originally invested. 

Last updated 6 August 2025