Starting out
Weight
Also called Position size or Allocation
How much of your portfolio one holding represents, as a percentage of the total value.
How it works
Weight is the number that tells you how much a holding actually matters. A share can double without moving your portfolio if it is 1% of the total; a 3% fall in something at 40% is a worse day than a 30% fall in something at 2%.
Weights drift on their own. Winners grow into a larger share of the portfolio and losers shrink, so a portfolio left alone slowly becomes a concentrated bet on whatever has already worked.
Where it misleads people
Weight measured on cost rather than on current value understates the winners. The thing that has quadrupled is the thing dominating your risk today, no matter what you paid for it.
Formula
Weight = value of the holding ÷ total portfolio value × 100Worked example
A $40,000 holding in a $500,000 portfolio is a weight of 8%. If it doubles to $80,000 and nothing else moves, its weight becomes 80,000 ÷ 540,000 = 14.8%.
Related terms
- PositionEverything you currently hold in one investment, however many separate purchases built it up.
- RebalancingSelling what has grown and buying what has lagged, to return the portfolio to its target mix.
- Concentration riskThe risk that too much of your outcome depends on one holding, sector, country or currency.
- DriftHow far your actual weights have moved away from the weights you intended to hold.
Mentioned in
More in Starting out
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.