Understanding Employer Stock Concentration

Employer stock compensation is one of the best benefits of working at a bigger company.

It can be an extremely powerful wealth-building tool. And the reality is, if you look at some of the richest people in modern history, the majority of their wealth is generated from having most or all of their eggs in one basket. So why not follow in their footsteps?

The answer comes down to context.

Their concentration in the companies that made them ultra-wealthy was conviction, which is intentional. Most employees who have get equity-based compensation end up unintentionally overinvested in their company’s stock.

The problem isn’t owning your company’s stock - it’s owning too much of it.

Concentration Happens Fast

One day, you start working at a company that offers stock-based compensation. A few years later, you look at your account statements, and realize the majority of your net worth is in your company’s stock.

Now you may be holding onto that stock because it is restricted. Or maybe because you don’t want to sell and pay the taxes. Or selling feels disloyal. Either way, the concentration builds by the day.

Over time, your employer’s stock begins to dominate your portfolio - often without any intentional choice being made.

What started as supplemental turns into dependency.

The Core Danger

The core danger of employer stock concentration isn’t volatility alone. It’s correlation.

When your paycheck, your bonus, your healthcare benefits and your investment all depend on the same company, a single negative event can hit multiple parts of your life at once.

Layoffs, restructuring or industry downturns don’t just affect the stock price. They affect job security, cash flow and confidence - simultaneously.

That’s a level of risk most investors would never choose deliberately.

Familiarity Can Distort Risk

People often feel safe holding a stock in a company they know well. They understand the business, worth with intelligent and capable colleagues, and see internal momentum that outsiders don’t. The familiarity can create confidence - sometimes more than the situation warrants.

But proximity doesn’t eliminate market risk. History is full of strong, well-run companies whose stock underperformed for long periods for reasons that were impossible to anticipate in advance.

Tax Complications

One of the most common reasons people delay action is taxes.

Selling stock compensation can trigger a large tax bill, and the idea of paying a large tax bill often feels worse than the risk of holding.

As a result, decisions can deferred indefinitely. Risk management and tax efficiency are treated as opposing goals, when in reality they should be evaluated together. In many cases, gradual, intentional diversification can materially reduce risk without sacrificing tax awareness.

Balance > Precision

Managing employer stock concentration isn’t about finding the perfect exit point or calling the top. It’s about aligning your investments with your broader financial life, such as your goals, investment horizon and risk tolerance.

Reducing concentration is often less about maximizing returns and more about protecting peace of mind.

Structure → Clarity

Without a clear framework, employer stock decisions tend to drift. You keep holding and your risk exposure keeps growing. A structured approach introduces clarity. It allows tradeoffs around risk, taxes and timing to be evaluated deliberately rather than reactively.

Employer stock can be a powerful asset when handled intentionally. Left unmanaged, your biggest asset could also become your biggest risk.

If you can relate to anything in this blog post, please don’t hesitate to reach out as my firm specializes in situations like this.

This article is for general informational purposes and may not apply to every individual situation. If this is a question you’re actively considering, a personalized conversation can often bring clarity.