Let’s talk about something that hits close to home for a lot of high-income earners: overconcentration. You know the drill—you’ve worked hard, climbed the ladder, and along the way, you’ve been rewarded with stock-based compensation like RSUs, ESPPs, or stock options. These perks can create some serious wealth—sometimes faster than you ever imagined. But here’s the catch: they can also leave you dangerously exposed if things don’t go as planned.
Overconcentration happens when too much of your net worth is tied up in just one or two companies. Sometimes it’s intentional because you believe in the company’s future. Other times, it’s accidental—RSUs pile up, ESPP shares accumulate, or stock options vest, and before you know it, a huge chunk of your wealth is riding on one stock.
Here’s the thing: this kind of concentration can work beautifully… until it doesn’t. And when it doesn’t, the fallout can be brutal. Let’s dive into why overconcentration is so risky, why people hesitate to fix it, and how you can protect yourself from losing everything you’ve worked so hard to build.
Why People Stay Stuck in Overconcentration
Even when it’s clear that having all your eggs in one basket is risky, many high earners hesitate to make a move. Here’s why:
1. Fear of the Tax Hit
One of the biggest reasons people avoid selling their company stock? Taxes. Selling appreciated stock can trigger capital gains taxes, which can feel like an immediate loss of wealth. For example:
- If you’re in a high tax bracket, for 2025 you could be looking at federal long-term capital gains taxes of up to 20%, plus state taxes depending on where you live.
- Employees who hold RSUs or exercised stock options might face even higher tax bills due to the way these assets are taxed upon vesting or exercise.
I get it—no one likes paying taxes. But here’s the problem: letting fear of taxes keep you from diversifying can lead to much bigger losses down the road. Think about it this way: would you rather pay some taxes now and protect the majority of your wealth, or risk losing everything to a market crash later?
2. FOMO (Fear of Missing Out)
Another big reason people stay put? FOMO. When you see your colleagues riding the wave of a skyrocketing stock price, it’s hard not to want to stay fully invested. You might worry about missing out on further upside or feel peer pressure to keep up with others who are “all in.”
This actually happened with a biotech executive I was speaking with about 10 years ago. She had amassed over $5 million in wealth, mostly from her company’s stock, which had gone on a crazy run—with a price to earnings ratio passing 1,200. When we talked about taking some risk off the table and diversifying, she immediately said, “No, I’m in for the long haul, and my colleagues all feel the same.”
Fast forward three months, and her company’s stock tanked—wiping out 80% of her wealth. What felt like a life-changing fortune disappeared almost overnight.
Her story isn’t unique. It’s a painful reminder that while FOMO feels real in the moment, the consequences of staying overexposed can be far worse.
Paper Wealth is Fragile
There’s no denying the allure of equity compensation. If you’re invested in the right company at the right time, your paper wealth can grow exponentially. But here’s the reality: paper wealth is fragile. It’s only as secure as the company’s stock price, which can plummet just as quickly as it rises.
Think about some of the biggest collapses we’ve seen over the years:
- Tech Bubble (Early 2000s): Employees at companies like Pet dot com and Webvan saw their fortunes evaporate when the bubble burst.
- Biotech Failures: Clinical trial failures have wiped out billions in employee wealth. One bad result can send a stock crashing.
- Energy Crash (2014): Oil prices dropped from over $100 per barrel to under $30, decimating energy companies and their employees’ portfolios.
- 2008 Financial Crisis: Major banks collapsed or needed bailouts, leaving employees holding worthless stock.
- Startup Busts: Companies like Theranos and WeWork once promised untold riches but ended up leaving employees with nothing.
The lesson here is simple: no industry is immune to disruption. Whether it’s tech, biotech, energy, finance, or any other sector, fortunes can vanish in a matter of months—or even weeks.
How to Protect Yourself
The good news? Overconcentration is manageable with the right strategy. Here’s how to take control of your financial future:
1. Set a Limit for Company Stock
Financial advisors often recommend keeping any single stock to no more than 10-15% of your total portfolio. Once your company stock exceeds this threshold, it’s time to take action. Sell some shares and reinvest the proceeds into a diversified mix of assets.
2. Create a Systematic Plan
To avoid emotional decision-making, set up a disciplined approach to selling company stock. For example:
- Sell a fixed percentage of vested RSUs each quarter.
- Use a trailing stop order to help protect gains against downside risk.
3. Diversify Gradually
Reinvest the money from selling company stock into a mix of asset classes, such as:
- Low-cost index funds or ETFs for broad market exposure.
- Bonds or dividend-paying stocks for stability.
- Real estate or alternative investments like private equity or commodities.
4. Minimize the Tax Impact
Selling company stock doesn’t have to mean handing over a huge chunk of your wealth to Uncle Sam. Here are a few strategies to consider:
- Use tax-loss harvesting to offset gains with losses elsewhere in your portfolio.
- Donate appreciated shares to charity to avoid capital gains taxes on those shares.
- Work with a tax advisor to time sales strategically, like during years when your income is lower.
5. Keep Emotions in Check
It’s easy to get emotionally attached to your company’s stock, especially if it’s done well for you in the past. But remember; diversifying isn’t a betrayal—it’s a smart financial decision. Your loyalty should be to your long-term financial security, not to a single stock.
Every Situation is Different
Here’s the bottom line: every person’s situation is unique. Depending on your age, income, goals, risk tolerance, and other factors, the best course of action will vary. What’s important is that you make the best decision for your situation at the time —whether you’re sitting on $500K, $5M, or $50M.
If you find yourself at this crossroads—trying to decide whether to stay concentrated or diversify—it’s critical to weigh the risks and rewards carefully. Don’t let fear of taxes or FOMO dictate your decisions. Instead, focus on building a diversified portfolio that aligns with your long-term goals and protects your financial future.
— Mateo