If most of your net worth is sitting in the company you work for, you already know it is too much. You have probably been told. You have likely already thought about it. And you still have not done anything about it. That is not a criticism. The reason you have not acted is really the same reason you are in this position in the first place.
It Worked. That’s Why You Have a Problem.
When we’re talking about concentrated employer stock, risk usually arises because the stock has performed particularly well. Maybe you watched it climb for a decade and built a new level of wealth because of it. Add to that the occasional coworker talking about the “next big run” at the water cooler, and the seeds of FOMO (fear of missing out) take root.
That said, the majority of people who give me a call are worried about it. They’re at least somewhat aware that a disproportionate amount of their balance sheet depends on this one company’s performance. I would describe them as generally unsettled, but what is the specific risk? And how do you unwind this concentrated position?
A Look at History - Bad Timing
Most companies do not go to zero. That is not the conversation we’re having. The more common and more damaging risk is a significant correction at exactly the wrong moment, right when you are transitioning out of full-time work and beginning to draw on the assets you spent decades building.
A concentrated position in a single stock does not give you the ability to absorb that hit the way a diversified portfolio can. If the market drops 35 percent and your wealth is spread across hundreds of companies, you wait. If your wealth is concentrated in one employer's stock and that stock drops 35 percent at age 58, two years before you planned to retire, the math changes in ways that are very difficult to recover from, even if the stock eventually comes back.
By the time it does, you may have already been drawing down assets at depressed prices, which is one of the most permanent ways to impair a long-term portfolio.
This is what financial planners call sequence of returns risk, and it is far more relevant to most families than a catastrophic collapse. You do not get to choose when volatility happens. A concentrated position means you absorb all of it when it does.
That said, total collapses do happen, and they tend to hit employees hardest. Do any locals in the Charlotte area remember Wachovia?
Not If To Sell, But How to Sell
I get a lot of calls about this topic, and more often than not, it’s triggered by a recent or coming change. In many cases, it has to do with hitting a benchmark age or approaching a desired retirement transition. It’s not just retirees, though. It also applies to employees who are looking to transition to another company. Something is changing that makes the future feel more real than today's stock price.
When that moment arrives, the decision to sell is not the hard part. How you sell is where much of the value gets created or lost.
Before You Sell a Single Share, Answer These Questions
As the anxiety grows, I meet people who feel the impulse to rip the bandage off, sell everything, clean the slate, and move on. That impulse is understandable, but what feels like a clean decision is often a very expensive one. Before executing any sale, work through the following:
Is the stock in a 401k or a taxable brokerage account? The tax treatment is completely different, and the sequencing of which account you pull from first matters significantly.
What is the cost basis on each lot, and are those gains short-term or long-term? The tax rate difference between the two can be 20 percentage points or more.
Does your company have a blackout period? Many do, and executing a trade during one has real legal and financial consequences.
Did your income already jump this year from a bonus or equity event? Stacking a large stock sale on top of a high-income year in the same calendar year is one of the most common and avoidable concentration mistakes.
Are your ESPP shares, RSU shares, and 401k shares being treated as one thing? They are taxed differently. Most people do not realize this until it is too late to matter.
The difference between a thoughtful exit and a reactive one can easily be $50,000 or $100,000 or more, not because the market behaved differently, but because the execution was more deliberate.
A Real Case Study
A family I worked with had a spouse who spent nearly 20 years at the same company, resulting in a significant concentration of employer stock within their overall financial picture.
This situation created an opportunity to evaluate how concentrated equity positions can fit within a broader planning framework, particularly when aligning investments with future financial goals and timelines.
The planning approach focused on several key considerations:
Reviewing the holdings to distinguish between long-term and short-term tax treatment and sequencing any potential activity accordingly.
Coordinating timing with other known income events to help manage overall tax exposure within a given year.
Evaluating whether a phased approach over multiple years may help address concentration while maintaining flexibility.
Considering ways to balance diversification goals with the client’s preferences around retaining exposure to the stock.
Situations like this often benefit from a thoughtful, individualized approach that takes into account the client’s broader financial picture, tax considerations, and personal goals.
If a significant part of your wealth is sitting in one stock and this conversation has not happened yet, that is exactly where we would start. Send me a message or schedule a time to chat and we can put the real numbers on the table together.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.