Equity compensation

When company stock becomes too much of your net worth

Concentration risk is what happens when a single holding grows large enough that its performance drives your financial outcome. For employees with equity compensation it carries an extra edge, because the same company also provides the salary, the benefits, and the future grants.

6 min read•Updated July 2026•By Austin Hunt, CFP®, CIMA®

The risk is correlated, which is the real problem

An outside investor holding a large position in one company faces investment risk. You face something more compact: if the company struggles, the stock can fall at the same moment that bonuses shrink, future grants are worth less, and job security gets less comfortable.

These are not independent events. That correlation is what makes employer concentration different from simply owning a lot of one stock, and it is why the usual advice to diversify carries more weight here than it might elsewhere.

Decide a threshold while you are calm

Rather than agonizing over each vest, pick a percentage of net worth above which you are not comfortable, and treat crossing it as a trigger to act. The specific number is personal and depends on your conviction, your other assets, and how much volatility you can genuinely sleep through.

The value of a threshold is that it converts a recurring emotional question into a mechanical one. You are no longer predicting the stock. You are following a rule you set when you were thinking clearly.

Diversify on a schedule, not on a hunch

Selling gradually on a predetermined cadence spreads the tax impact across years and removes the temptation to time an exit. If you have access to a formal pre-set trading plan through your employer, it can also help with trading windows and the awkwardness of deciding during a blackout.

Taxes deserve attention but should not run the whole show. Holding a concentrated position purely to avoid a tax bill is letting the tail wag the dog, and the market does not know or care about your basis.

Where the proceeds go matters too

Selling concentrated stock and leaving the cash idle solves one problem and creates another. The proceeds generally want to land in a broadly diversified portfolio that matches your actual plan.

Done in a taxable account, this is also where a tax-aware approach earns its keep, since gains realized on the way out can sometimes be offset by losses harvested elsewhere in the same year.

The short version

Employer concentration is riskier than ordinary concentration because the risks are correlated.
Setting a percentage-of-net-worth threshold converts an emotional call into a mechanical one.
Scheduled selling spreads tax impact and removes market timing from the decision.
Avoiding tax is not a sufficient reason to stay concentrated.

Talk it through with Austin

Keep reading

Let's build something together

If you're looking for a financial partner who's in it for the long haul, let's talk.

See if we're a fit See how it works

No obligation. No sales pitch. Just a conversation.

Loading…