When 60% of Your Net Worth Is in One Stock: A Tech Professional's Guide to Concentrated Stock Risk

Your company stock has been good to you. Really good.

Those RSUs that vested last year? Up 40%. The shares from three years ago? Up 120%. That ESPP discount you've been taking advantage of? It keeps compounding. Every time you log into your brokerage account, the numbers look better.

And then one day you run the calculation and realize: 60% of your investable net worth is in a single stock. The same company that pays your salary, provides your health insurance, and determines whether you get a bonus this year.

If you're a tech professional in the Bay Area, this scenario isn't unusual—it's practically the default path. But here's what most people don't realize: doing nothing is actually making a very specific investment decision. One you probably wouldn't make if you saw it clearly.

What We Mean by "Concentrated"

A concentrated stock position exists when a disproportionate amount of your wealth is tied to a single company's stock.

In traditional portfolio management, anything over 10% in one stock raises eyebrows. But in the tech world, I regularly see:

• 30-50% of liquid assets in employer stock
• 70%+ exposure among early employees post-IPO
• Six-figure positions that started as "just a few vests"
• Significant 401(k) balances in company stock

Concentration isn't inherently bad. It's a risk characteristic. The real question is: Is this concentration intentional, or did it just... happen?

The Silent Accumulation: How You Got Here

Most people don't wake up one day and decide to put half their net worth in one stock. Concentration builds gradually, through patterns that feel completely normal:

The RSU Accumulation Pattern

RSUs vest. Taxes get withheld. Shares land in your brokerage account. You're busy. You don't sell. Next quarter, more shares vest. The stock goes up. Now selling "feels" expensive because of taxes. More shares vest. The cycle continues.

Five years later, you're concentrated.

The ISO Hold Strategy

You exercised ISOs early to start the long-term capital gains clock. Smart move from a tax perspective. But now those shares have appreciated 5x, and suddenly your "tax planning" has created meaningful concentration risk.

The "It Keeps Going Up" Trap

The stock performed well. You feel validated for holding. The gains create confidence. That confidence creates more holding. It's a self-reinforcing loop—until it isn't.

The Inertia Effect

You know you should diversify. You've been meaning to. But there's always a reason to wait: the upcoming product launch, earnings next quarter, that feeling that "now isn't the right time."

Inertia is powerful. It feels like neutrality, but it's actually a decision to maintain concentrated exposure.

Why Single-Stock Risk Is Different

All investing involves uncertainty. But single-stock risk is structurally different from broad market risk in a critical way:

Company-specific risk is uncompensated.

When you invest in a diversified index fund, you're exposed to systematic risk—the broad economic forces that drive long-term returns. Markets compensate you for bearing this risk over time.

When you hold a single stock, you layer on idiosyncratic risk:

• Competitive disruption
• Product failures
• Regulatory changes
• Leadership turnover
• Litigation
• Industry cycles
• Company-specific scandals

These risks are diversifiable—meaning you can eliminate them through diversification. And crucially, markets don't pay you extra for bearing them.

You're taking risk without compensation.

The Math of Volatility Works Against You

Here's something that surprises people: high volatility impairs long-term compounding, even if average returns look similar.

Consider two scenarios:

Scenario A (Concentrated):
Year 1: +80%
Year 2: -50%
Result: -10% overall

Scenario B (Diversified):
Year 1: +5%
Year 2: +5%
Result: +10% overall

The concentrated position has a higher "average" return (+15% vs +5%), but you end up down 10% because volatility is asymmetric. A 50% loss requires a 100% gain just to break even.

Big drawdowns are hard to recover from. Volatility drag is real.

Diversification reduces volatility, which increases the probability you'll stay invested long enough to benefit from compounding.

The Correlation Problem: When Everything Is Tied to One Outcome

For most tech professionals, employer stock concentration creates a hidden amplification of risk:

• Your salary depends on the company
• Your bonus depends on company performance
• Your equity compensation depends on the stock price
• Your health insurance depends on employment
• Your professional network is tied to the company

In good times, everything rises together. Career progression, salary increases, stock appreciation—it all feels aligned.

In downturns, everything falls together. Layoffs typically coincide with stock price declines. The worst-case scenario isn't just a falling stock—it's falling stock plus job loss right when you need liquidity.

This is correlated risk, and it's more dangerous than most people realize.

Diversification isn't pessimism about your company. It's de-correlation between your career and your financial security.

The Behavioral Forces That Keep You Concentrated

If concentration is risky, and diversification is straightforward, why don't more people act?

Because the obstacles aren't mathematical—they're psychological.

Overconfidence Bias

You work at the company. You see the roadmap. You know the talent. You believe you have an edge.

But public markets already price in vast amounts of information. Your inside perspective—valuable as it is for your career—doesn't eliminate stock-specific risk. Confidence is not the same as edge.

The Endowment Effect

We overvalue things simply because we own them. Shares you've held for years feel different than shares you'd buy today with cash. But economically, they're identical.

Ask yourself: If your company paid you entirely in cash, would you use that cash to buy this much company stock?

For most people, the answer is no. Yet holding vested RSUs is economically equivalent to exactly that decision.

Anchoring to Peak Prices

"I don't want to sell below $X."

The market doesn't care what you paid, what the stock used to trade at, or what you think it's worth. Anchoring to arbitrary reference points creates artificial constraints that have nothing to do with your actual financial plan.

Tax Aversion

The immediate pain of paying a tax bill feels worse than the abstract risk of a future decline.

But here's the reality: if your effective tax rate on gains is 30%, and the stock falls 40%, you're worse off having avoided the tax.

Risk is often much larger than tax.

Regret Aversion

The fear of selling and watching the stock continue to rise is powerful. It feels like "missing out."

But the asymmetry matters: selling and watching it rise means you've locked in gains and diversified (a good outcome). Holding and watching it fall means you've lost real wealth and remained concentrated (a bad outcome).

The regret of selling too early is painful but manageable. The regret of not selling before a major decline is much harder to live with.

What Happens When You Don't Diversify: Real Patterns

I've worked with enough clients through market cycles to recognize common patterns:

Pattern 1: The Wait-and-See Trap
The stock is up significantly. You decide to "wait for a better price." The stock pulls back 15%. Now it feels like selling at a loss relative to the peak. You wait for it to recover. It falls further. Suddenly you're anchored to a price that may never return.

Pattern 2: The Tax Paralysis
You delay diversifying because of taxes. The position grows larger. The tax bill grows scarier. The position grows even larger. Eventually the position is so big that the tax consequences feel overwhelming, and you do... nothing.

Pattern 3: The Liquidity Crisis
Everything is fine—until it isn't. An unexpected expense arises. The stock is down 30%. You're forced to sell at exactly the wrong time, realizing losses and paying for poor timing.

None of these outcomes are inevitable. But they're all predictable when concentration meets volatility meets human psychology.

The Tax Reality (It's Not as Bad as It Feels)

Taxes are the most common reason people delay diversification. Let's address this directly.

How Capital Gains Actually Work

If you sell appreciated stock held longer than one year, you'll pay:

• Federal long-term capital gains tax: 0%, 15%, or 20% depending on income
• Net Investment Income Tax (NIIT): 3.8% for high earners
• California state tax: Up to 13.3% (no preferential rate for capital gains)

For high-income Bay Area professionals, the combined effective rate on long-term gains can approach 30-35%.

That sounds significant. And it is.

But compare that rate to the risk of a 40-60% stock decline. The math often favors paying the tax.

Tax-Smart Diversification Strategies

You don't have to sell everything at once. Thoughtful approaches include:

• Spreading sales over multiple years to manage brackets
• Offsetting gains with harvested losses from other positions
• Selling in lower-income years (career transitions, sabbaticals, early retirement)
• Coordinating with deductions (retirement contributions, charitable giving)

Tax management should support diversification—not prevent it entirely.

The ISO and AMT Consideration

If you've exercised ISOs, holding shares to qualify for long-term capital gains treatment creates a specific tradeoff:

• Benefit: Potential tax savings
• Cost: Continued concentration and market risk
• Complexity: Alternative Minimum Tax exposure

This requires careful planning. Sometimes the tax benefit is worth the wait. Sometimes it isn't. The answer depends on position size, your overall financial picture, and market conditions.

Practical Diversification Strategies (No Complex Derivatives Required)

You don't need collars, prepaid variable forwards, or exchange funds to address most concentration scenarios. Here are the strategies that work for the majority of situations:

1. Systematic Selling Plans

Remove emotion by establishing a written plan:

• Sell 10-20% of the position annually
• Sell immediately upon RSU vest
• Use predetermined price triggers
• Reinvest proceeds according to your target asset allocation

Discipline reduces decision fatigue. The plan makes the decision for you.

2. The "Diversify Future Equity First" Approach

Even if you're not ready to sell legacy shares, you can start by:

• Selling all new RSU vests immediately
• Avoiding further accumulation
• Reinvesting proceeds into diversified funds

Over time, this materially reduces concentration without requiring you to touch existing shares.

3. Staged Sales Over Time

Instead of one large sale:

• Stage diversification over 3-5 years
• Monitor tax brackets each year
• Coordinate with other income events
• Integrate with retirement contributions

Gradual sales create flexibility and reduce the behavioral resistance to "selling everything."

4. Charitable Giving of Appreciated Shares

If you have philanthropic goals:

• Donate highly appreciated shares to a donor-advised fund or charity
• Avoid capital gains tax entirely
• Deduct fair market value (subject to AGI limitations)
• Support causes you care about

This simultaneously reduces concentration and advances your charitable intent.

5. Using 10b5-1 Trading Plans (For Insiders)

If you're subject to trading restrictions:

• Establish a pre-arranged trading plan during an open window
• Enable systematic diversification during blackout periods
• Remove emotional decision-making
• Maintain compliance

These plans provide structure and regulatory protection.

Advanced strategies like zero-premium collars, variable prepaid forwards, and exchange funds exist, but they're typically only appropriate for very large positions (multi-million dollar exposures) where liquidity needs are immediate and tax consequences are severe. For most situations, the strategies above are more practical and cost-effective.

A Framework for Making the Decision

Deciding how much concentration is appropriate requires looking at your full financial picture:

Questions to Ask Yourself

Wealth perspective:

• What percentage of my net worth is in this single stock?
• Do I have substantial diversified assets outside this position?
• Could I achieve my financial goals if this position declined 50%?

Income perspective:

• How stable is my employment?
• How dependent is my total compensation on company performance?
• Would a job loss coincide with a stock price decline?

Time horizon perspective:

• How many years until I need this capital?
• Am I early in wealth accumulation or approaching financial independence?
• Can I tolerate volatility for the next 5-10 years?

Stress test:If your company stock fell 40% tomorrow:

• Would your retirement timeline change?
• Would major life plans (home purchase, education funding) be affected?
• Would your stress level increase meaningfully?

If the answer to any of these is "yes," the concentration deserves immediate attention.

When Concentration Might Be Reasonable

Not all concentrated positions are imprudent. There are scenarios where maintaining concentration can be rational:

• You're early in your career with decades of earning ahead
• The concentrated position is a small fraction of total net worth
• You have substantial diversified assets elsewhere
• You're an early-stage employee with high-risk tolerance and asymmetric upside
• Liquidity constraints are temporary and you have a clear exit plan

The key is intentionality. Concentration should be a conscious allocation decision, not the result of inertia.

Moving From Company Success to Durable Wealth

Here's a pattern I see repeatedly:

Many tech professionals build wealth through concentrated stock positions. Very few maintain long-term financial security by staying concentrated indefinitely.

The transition from career-driven wealth accumulation to durable, multi-decade financial independence typically requires:

1. Diversification to reduce single-stock risk
2. Tax planning to minimize unnecessary friction
3. Risk management aligned with life goals
4. Behavioral discipline to override psychological obstacles

The goal isn't to bet against your company. The goal is to ensure your financial future doesn't depend on a single outcome.

You can honor the role your company played in building your wealth while still protecting the future that wealth is meant to support.

Final Thoughts: The Difference Between Wealth and Financial Security

Your company stock may have created wealth. But wealth and financial security aren't the same thing.

Wealth is a number on a screen. Financial security is the confidence that you can support your life, your family, and your goals regardless of what happens to a single company's stock price.

The professionals I work with who successfully navigate this transition share a common trait: they recognize that diversification isn't about doubting their company—it's about ensuring their financial future doesn't require their company to succeed forever. Because even great companies face headwinds. Industries change. Competition emerges. Nothing is permanent.

If a significant portion of your net worth is in employer stock, you've likely benefited enormously from that company's success. The question now is: what's the next step to convert that success into lasting financial security?

Are you risking too much on a single, specific outcome? Book a free consultation today.

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