You’ve spent the better part of your career helping build a successful company. You’ve been promoted, your compensation has increased, and over the years you’ve accumulated a substantial amount of company stock through restricted stock units, stock options, and perhaps an employee stock purchase plan. The stock has performed exceptionally well, and what started as a relatively modest part of your financial picture has grown into one of your largest assets.
Now you’re looking at your accounts and realizing that 40% of your net worth is tied up in a single company. On one hand, it’s a pretty good problem to have. On the other, you can’t help wondering whether you’ve allowed things to get a little out of hand.
And here’s what makes the decision particularly difficult: You believe in the company. You know the management team, understand the business, and may have a better appreciation of its competitive advantages than most investors. Selling shares feels almost like betting against the very company that helped make you wealthy.
I understand that hesitation. But there’s an important distinction between believing a company will continue to succeed and deciding how much of your family’s financial future should depend on that success.
Why Is Having So Much Wealth in Company Stock a Problem?
Most investors understand the concept of diversification. You probably wouldn’t take $2 million in cash and invest the entire amount in a single stock, regardless of how promising the company appeared. Yet executives frequently find themselves in essentially that position, not because they made a conscious decision to concentrate their investments, but because their employer’s stock performed so well.
There’s an additional complication that makes employer stock different from an ordinary concentrated investment. Your financial exposure to the company extends well beyond the shares sitting in your brokerage account.
Consider everything that might depend on your employer’s continued success:
- Your salary and annual bonus. A struggling company may freeze compensation, reduce bonuses, or eliminate positions.
- Future equity compensation. Restricted stock units and performance awards may represent a substantial portion of your expected compensation over the next several years.
- Your existing company stock. A significant decline in the share price could erase hundreds of thousands, or even millions, of dollars in accumulated wealth.
- Your career prospects. If your employer experiences serious financial difficulties, finding another position with comparable compensation may take time, particularly for senior executives.
- Your retirement plans. If you’ve been counting on future stock appreciation or equity awards to fund an early retirement, disappointing company performance could force you to work longer than anticipated.
The real concern is that these risks are correlated. A company that experiences a severe downturn may simultaneously reduce your compensation, eliminate future equity awards, and see its stock price collapse.
This is why I think executives need to evaluate employer stock differently from other investments. You’re not simply deciding how much of one stock you want to own. You’re deciding how much of your financial life you’re comfortable having tied to a single business.
What Would a 40% Company Stock Position Mean During a Market Decline?
Let’s put some numbers around the problem.
Suppose you’re a 52-year-old executive with a net worth of $5 million, including $2 million in company stock. The remaining $3 million is spread among retirement accounts, other investments, home equity, and cash.
Now imagine your company’s stock falls 50%. That’s certainly a substantial decline, but it’s hardly unprecedented for individual companies, including very successful ones.
Your $2 million position is suddenly worth $1 million. You’ve lost $1 million, or 20% of your original net worth, before accounting for anything that might have happened to your other investments.
If the broader market is also declining, the damage could be considerably worse. And if the company’s difficulties threaten your employment or future equity compensation, your ability to recover financially may be compromised at precisely the wrong time.
Of course, the opposite could happen. Your company’s stock might double over the next five years, and selling today would mean giving up some of those gains.
That’s a legitimate tradeoff, and I wouldn’t pretend otherwise. Diversification isn’t designed to maximize the return you could earn if your favorite stock performs exceptionally well. It’s designed to reduce the likelihood that one disappointing outcome permanently changes your financial future.
For someone approaching retirement, I would argue that distinction becomes increasingly important.
Should I Sell My Company Stock Even If I Think It Will Keep Going Up?
One of the most common objections to selling company stock is that the executive knows the business better than almost anyone.
There’s some truth to that. Someone who’s spent 20 years working for a company may have valuable insight into its products, customers, competitive position, and long-term strategy.
But understanding a business and knowing what its stock will do are two very different things.
A company can report excellent earnings, grow revenue, increase market share, and still deliver disappointing investment returns. Sometimes the stock price already reflects years of anticipated success. Other times, changes in interest rates, competition, or investor sentiment can overwhelm otherwise strong business performance.
And even executives who understand their companies exceptionally well can’t reliably anticipate every development that might affect the stock.
I think there’s also a psychological issue worth acknowledging. When you’ve spent years working somewhere, company stock isn’t just another investment. It can represent your professional accomplishments, your loyalty to colleagues, and your confidence in the decisions you’ve helped make.
Selling can feel like an admission that you no longer believe in the business.
But I would encourage you to think about it differently. You can be optimistic about your company’s future while recognizing that your family has already made a substantial financial commitment to its success. Selling some shares doesn’t mean you’ve lost confidence. It means you’re converting part of that success into financial security that no longer depends on a single employer.
How Much Company Stock Is Too Much?
There isn’t a universally correct percentage. You’ll sometimes hear financial advisors recommend limiting individual stocks to 5% or 10% of a portfolio, and those can be reasonable guidelines. But applying a rigid rule to every executive overlooks some important differences.
A 40-year-old executive with $8 million in liquid investments, modest spending needs, and a secure financial future may have considerably more flexibility than a 60-year-old executive whose retirement depends on maintaining the value of a concentrated position.
Likewise, an executive with $2 million in company stock and another $10 million in diversified investments faces a different situation from someone whose $2 million company stock position represents nearly everything they’ve accumulated outside their home.
Rather than starting with an arbitrary percentage, I prefer to work backward from the consequences of a substantial loss.
There are three questions I think are particularly useful:
What happens if the stock falls 50%?
Would you still be able to retire when planned? Could you continue funding your lifestyle, helping your children, or meeting other financial commitments? If the answer is yes, you may have more flexibility to maintain a concentrated position.
What happens if the stock falls 50% and you lose your job?
This is the scenario that deserves more attention than it typically receives. A severe company-specific problem could affect your investment portfolio and your earnings at the same time. You need to know whether your other assets could support you through an extended period without employment.
How much company stock do you actually need to own to accomplish your goals?
This may be the most important question of all. If you’ve already accumulated enough wealth to fund a comfortable retirement, what are you gaining by continuing to expose such a large portion of it to a single company?
There may be perfectly reasonable answers. Perhaps you want to leave a substantial inheritance, make significant charitable gifts, or simply maintain some participation in the company’s future.
But those should be deliberate decisions rather than the default result of never selling anything.
How Can I Reduce My Company Stock Without Paying a Fortune in Taxes?
For many executives, taxes are the biggest obstacle to diversification.
Imagine you own $2 million in company stock with a cost basis of $400,000. Selling the entire position would realize $1.6 million in capital gains. Depending on your income and state of residence, the resulting federal and state tax bill could be substantial.
Understandably, writing that check doesn’t sound particularly appealing.
But there’s a mistake I see investors make with appreciated assets: They become so focused on avoiding taxes that they lose sight of the investment risk they’re accepting.
A capital gains tax is a cost associated with realizing a profit. A severe decline in the stock price, on the other hand, can destroy wealth that may never be recovered.
That doesn’t mean you should liquidate everything tomorrow. It means the tax consequences should be incorporated into a broader diversification strategy rather than allowed to dictate the entire decision.
Several approaches are worth considering.
Sell shares gradually over multiple tax years
If you don’t need to reduce your position immediately, spreading sales over several years may help manage the tax consequences.
For example, instead of selling $1 million in company stock during a single year, you might sell $200,000 annually over five years. Depending on your other income and capital gains, this could help avoid pushing additional gains into higher tax brackets.
However, the strategy comes with a tradeoff. You’re continuing to carry concentration risk while waiting to complete the sales.
If the stock experiences a major decline during that period, the taxes you saved may seem rather insignificant.
Consider selling newly vested RSUs
For executives who continue receiving restricted stock units, newly vested shares can provide a relatively straightforward opportunity to diversify.
When RSUs vest, their fair market value is generally included in your compensation and taxed as ordinary income. That value also generally becomes your cost basis in the shares.
Consequently, selling shares shortly after vesting may generate relatively little additional capital gain or loss, assuming the stock price hasn’t moved substantially.
This is an important distinction because many executives hesitate to sell newly vested shares out of concern about taxes, even though the primary income tax liability has already been triggered by vesting.
If you’re continuing to accumulate company stock through future awards, regularly selling newly vested shares can help prevent the concentration from growing further.
Donate appreciated shares to charity
If you’re charitably inclined, donating appreciated company stock may be more tax-efficient than selling the shares and donating the proceeds.
When eligible long-term appreciated shares are donated directly to a qualified public charity, you can generally avoid recognizing the embedded capital gain. You may also qualify for a charitable deduction, subject to applicable limits and other tax rules.
A donor-advised fund can be useful for someone who wants to make a significant charitable contribution now while distributing the money to individual charities over time.
Of course, donating shares isn’t a way to create wealth. You’re giving away an asset. But if charitable giving is already part of your financial plan, using appreciated stock may allow you to accomplish that goal more efficiently.
Coordinate sales with changes in your income
Executives often experience substantial changes in taxable income when they retire, change employers, or stop receiving large equity awards.
Those transitions may create opportunities to realize capital gains at more favorable tax rates.
For example, an executive earning $600,000 annually may have less flexibility to manage capital gains taxes than someone who has recently retired and is living primarily from investment assets.
The difficulty is that waiting for a lower-income year means continuing to hold the stock in the meantime.
This is where financial planning becomes especially important. You need to compare the potential tax savings against the consequences of maintaining the concentrated position.
What If My Company Won’t Let Me Sell the Stock?
Unlike most individual investors, executives may not be free to trade their shares whenever they choose.
Many public companies establish blackout periods around earnings announcements and other sensitive events. Executives and certain employees may also be subject to additional trading restrictions because of their access to material nonpublic information.
Even when a trading window is open, possessing material nonpublic information can prohibit trading.
This can make diversification more complicated, particularly for senior executives whose access to sensitive information is ongoing.
One potential solution is a Rule 10b5-1 trading plan.
How does a 10b5-1 plan work?
A properly established Rule 10b5-1 plan allows an executive to arrange for future stock sales according to predetermined instructions, provided the plan satisfies applicable securities rules.
For example, a plan might direct a broker to sell a specified number of shares at scheduled intervals or when certain price conditions are met.
The advantage is that the executive doesn’t have to make a new discretionary trading decision every time shares are sold.
However, these plans are not a way around insider trading laws. They must be adopted in good faith when the executive is not aware of material nonpublic information, and they are subject to important restrictions.
For directors and officers, applicable rules generally require a cooling-off period before trading can begin. There are also limitations involving overlapping plans, modifications, and other aspects of the arrangement.
Company policies may impose additional requirements.
For executives with significant company stock exposure, I think a properly structured trading plan can be particularly valuable because it introduces discipline into a process that might otherwise be driven by emotion or short-term market movements.
But it should be coordinated with the company’s legal or compliance department and an attorney familiar with the applicable securities rules.
Should I Use Options to Protect My Company Stock Instead of Selling?
Some executives are reluctant to sell shares because they want to maintain exposure to future appreciation. Others may have significant unrealized capital gains and would prefer to postpone realizing them.
That naturally raises the question of whether options can provide downside protection without requiring an immediate sale.
In some circumstances, they can.
For example, purchasing put options may help establish a floor beneath the value of a stock position for a defined period. A collar strategy combines purchasing protective puts with selling call options, potentially reducing the cost of protection in exchange for limiting some future upside.
These strategies can be useful, but they come with meaningful complications.
First, protective options can be expensive, particularly when the underlying stock is volatile. Maintaining protection over several years may require repeated purchases, and those costs can add up.
Second, collars and other hedging arrangements can create complicated tax consequences, including potential constructive sale issues under federal tax law.
Third, many companies restrict or prohibit employees and executives from hedging their company stock. For some executives, these strategies simply won’t be available.
I would be cautious about treating options as an easy substitute for diversification. They’re worth evaluating when the circumstances justify the complexity, but in many cases, gradually selling shares and reinvesting the proceeds in a diversified portfolio is the cleaner solution.
A Practical Framework for Reducing Company Stock Concentration
If you’re sitting on a large company stock position, I wouldn’t start by asking how many shares you should sell this month.
I’d start by understanding what the position means for your financial future.
Here’s the process I would use.
Step 1: Measure your total exposure.
Add up your vested company shares, shares held in retirement accounts, and other existing positions tied to your employer. Then separately evaluate unvested RSUs, stock options, performance awards, and future compensation that could increase your exposure.
Don’t treat unvested awards as equivalent to cash or fully owned shares. The point is to understand both the wealth you already have at risk and the compensation you expect to receive in the future.
Step 2: Stress-test your financial plan.
Model what happens if your company stock falls 30%, 50%, or even 70%. Then consider a scenario in which the decline coincides with job loss, reduced bonuses, or the elimination of future equity awards.
The objective isn’t to predict that these events will occur. It’s to understand whether you could withstand them without permanently compromising your financial goals.
Step 3: Establish a target concentration.
Once you understand the consequences of a substantial loss, decide how much company stock you’re comfortable retaining.
That might mean reducing a 40% position to 20% initially, with a longer-term goal of 10%. Or it might mean a more aggressive reduction if retirement is approaching and the stock represents a critical part of your financial security.
The appropriate target depends on your circumstances, not a universal rule.
Step 4: Develop a tax-aware selling schedule.
Review the cost basis and holding periods of your shares, expected future compensation, projected income, charitable intentions, and potential retirement date.
Then develop a selling strategy that balances the tax consequences against the need to reduce risk. Depending on your situation, that might involve selling higher-basis shares first, using future vesting events, spreading gains across tax years, or establishing a 10b5-1 plan.
Step 5: Decide what happens to the proceeds.
Selling company stock is only half the decision.
The proceeds should be invested according to your broader financial plan, taking into account your retirement timeline, spending needs, risk tolerance, and other assets.
If you’re five years from retirement, the right destination may be very different from what it would be for an executive who expects to work another 20 years.
And remember that exchanging your company stock for a portfolio concentrated in similar companies or the same industry may not accomplish as much diversification as you think.
What If I Sell and the Stock Keeps Going Up?
I suspect this is the concern that causes more hesitation than almost anything else.
Imagine selling $500,000 of company stock, only to watch it double over the next three years. You might find yourself calculating how much money you would have made if you’d simply held on.
That’s a very human reaction, particularly when you’ve spent years watching the company succeed.
But I think it’s important to judge a financial decision based on the information available when you made it, not solely on what happened afterward.
Suppose you sell enough shares to fund your retirement, eliminate your mortgage, or establish a diversified portfolio that can support your family’s financial needs regardless of what happens to your employer.
If the company subsequently doubles in value, was selling really a mistake?
I would argue that it wasn’t. You exchanged some uncertain future upside for a much more predictable financial outcome. That’s not necessarily a bad trade, particularly if you’ve already accumulated enough wealth to accomplish the things that matter most to you.
And diversification doesn’t have to mean selling every share. You can maintain a meaningful position in the company while reducing the possibility that one disappointing outcome derails your financial plans.
The Goal Isn’t to Sell Your Company Stock. It’s to Protect What You’ve Built.
There’s something genuinely satisfying about building wealth through a company you’ve helped grow. For many executives, the accumulated stock represents decades of hard work, professional accomplishment, and a willingness to take risks that ultimately paid off.
I wouldn’t dismiss that connection, and I certainly wouldn’t suggest that every executive should immediately liquidate a concentrated position regardless of the tax consequences or personal circumstances.
But as your wealth grows, the financial decisions that made sense earlier in your career may no longer be appropriate.
When you’re 35 and still accumulating assets, taking substantial risk in pursuit of greater wealth may be perfectly reasonable. When you’re 55, have accumulated several million dollars, and are beginning to think seriously about retirement, protecting what you’ve built deserves considerably more attention.
The question isn’t whether your company will continue to succeed. I hope it does.
The more important question is whether your family’s financial security should depend on it.
If company stock has become a substantial portion of your net worth, it may be worth reviewing how that exposure fits into your retirement plan, what a significant decline would mean, and how to reduce the risk without creating unnecessary taxes.
At Fortress Capital Advisors, I work with executives and pre-retirees in Carmel, Indianapolis, and throughout Indiana on these kinds of decisions. If you’d like to talk through your company stock exposure and how it fits into your broader financial plan, feel free to get in touch.
Frequently Asked Questions
Is 40% of my net worth in company stock too much?
For many executives, 40% represents a substantial concentration, particularly when their salary, bonuses, and future equity compensation also depend on the same employer. Whether it’s excessive depends on your other assets, retirement timeline, spending needs, and ability to withstand a significant loss. A useful starting point is to evaluate what a 50% decline in the stock would mean for your financial plan.
Can I sell my RSUs immediately after they vest?
Generally, yes, provided you’re permitted to trade under your company’s policies and applicable securities laws. RSUs are generally taxed as ordinary income when they vest, so selling shortly afterward often produces relatively little additional capital gain or loss. However, blackout periods and insider trading restrictions may limit when you can sell.
Can I avoid capital gains taxes when selling company stock?
There are legitimate ways to manage or potentially reduce capital gains taxes, including spreading sales across tax years, selecting higher-basis shares, donating eligible appreciated shares to charity, and coordinating sales with lower-income years. However, simply selling appreciated shares in a taxable account generally triggers recognition of capital gains. The goal should be to manage taxes intelligently rather than allow tax avoidance to prevent necessary diversification.
What is a 10b5-1 trading plan?
A Rule 10b5-1 trading plan is a predetermined arrangement for buying or selling company securities that, when properly established and operated, can provide an affirmative defense against certain insider trading claims. Executives often use these plans to schedule stock sales while complying with applicable trading restrictions. Plans must satisfy specific regulatory requirements, and company policies may impose additional limitations.
Should I sell company stock before retiring?
Retirement is an especially important time to evaluate concentrated company stock because you may soon lose the salary and future compensation that helped you tolerate investment risk. A significant stock decline shortly before or after retirement could have lasting consequences. That doesn’t necessarily mean selling everything, but it does mean making sure your retirement plan isn’t overly dependent on the performance of one company.
About the Author
Steven Neeley, CFP®, is a financial advisor with Fortress Capital Advisors, a fee-only fiduciary registered investment advisory firm based in Carmel, Indiana. He specializes in retirement planning, investment management, and helping individuals make informed financial decisions as they approach and transition into retirement.
Important Information
Investment advisory services are offered through Fortress Capital Advisors LLC, a fee-only fiduciary registered investment advisor. This article is for informational purposes only and should not be interpreted as individualized investment, tax, or legal advice. Tax treatment depends on individual circumstances, and company stock transactions may be subject to securities laws, employer policies, and other restrictions. Consult appropriate tax and legal professionals before implementing a company stock diversification strategy.
