The Danger Zone: Managing the Risk of Concentrated Company Stock & RSUs
- Marc Lowe
- May 15
- 4 min read
Updated: May 16
Equity compensation can be a powerful wealth-building tool—stock options, RSUs, and ESPPs have helped countless professionals achieve financial success. But with that opportunity comes a risk that many overlook: having too much of one’s financial future tied to a single company’s stock.
When company stock or options grow to represent a significant portion of someone’s wealth, they’ve entered what can be called the Danger Zone. It’s a “good problem” to have—but one that demands careful management before market volatility forces a decision.
Three Dangerous Misconceptions About Company Stock & RSUs
Over the years, many professionals have faced concentrated equity positions. Most are smart, successful, and deeply engaged with their companies. And yet, time and again, the same risky assumptions emerge—assumptions that can put long-term financial security at risk.
Misconception #1: "My Company Is Different"
It’s natural for employees to feel a sense of safety and optimism when they know their company inside and out. They see the innovation firsthand, trust the leadership team, and believe in the business model.
But here’s the reality: The company and the stock are two very different things.
Even if the company is performing well, its stock can be influenced by factors beyond anyone’s control—market sentiment, interest rate shifts, geopolitical events, and sector-wide selloffs. Concentrating wealth in one stock, no matter how strong the business appears, exposes an investor to significantly higher risk than a diversified portfolio.
Think of it like roulette: placing all bets on a single number rather than spreading them across the board.
Misconception #2: "My Analysis Will Protect Me"
Many professionals believe they can mitigate risk through careful analysis—reading earnings reports, following industry trends, or drawing insights from internal meetings.
But the truth is: Even the best analysis cannot predict market movements.
A promising financial model cannot forecast black swan events, regulatory surprises, or shifts in investor sentiment. It’s like assembling a baseball team full of all-stars—yet still not knowing who will strike out or get injured. The market often behaves unpredictably, regardless of how sound the fundamentals may appear.
Misconception #3: "I’ll Just Keep an Eye on It"
This is perhaps the most dangerous belief: the idea that someone can simply monitor the stock and act if things start to deteriorate.
The problem? By the time warning signs are obvious, it’s often too late.
Stock prices move fast, and distinguishing between a temporary dip and a long-term decline is incredibly difficult. Consider the infamous case of Enron employees, who watched their retirement savings vanish while repeatedly believing, “It’ll bounce back.” Without a pre-set strategy, emotional decisions take over—and often result in painful financial outcomes.
The Simple Solution: Strategic Diversification
When company stock has grown to represent a large share of someone’s overall portfolio, the simplest course of action is: diversify.
This doesn’t mean liquidating everything at once. It means developing a structured plan to reduce exposure over time, safeguarding wealth without losing all upside potential.
General guidelines? If company stock is kept below 10% of total investment assets, there is less chance for major impact on a portfolio . When it exceeds 20%, the level of risk becomes significant—no matter how strong the company appears on paper.
Taking Action: A Diversification Plan
Here’s a practical framework professionals can follow to manage the risk of concentrated company stock:
Establish a comfort threshold Decide how much of one’s net worth should reasonably be allocated to a single stock.
Create a diversification schedule Design a timeline to gradually reduce the position—whether quarterly, annually, or in alignment with vesting milestones.
Consider tax implications Work with a qualified tax advisor to minimize capital gains while executing the strategy efficiently.
Reinvest strategically Direct the proceeds into a well-diversified portfolio that supports long-term financial goals—retirement, education, legacy, or lifestyle.
Review regularly As new shares vest or stock values change, portfolios should be rebalanced to maintain target allocations.
The Bottom Line
Equity compensation can be one of the most valuable elements of a financial plan—but allowing it to dominate an individual’s wealth introduces risks that no amount of company loyalty or detailed analysis can justify.
Even the most promising businesses face unexpected disruptions. By proactively managing concentration risk, professionals can protect the wealth they’ve worked hard to build—regardless of where their company’s stock goes next.
How much of their net worth is tied up in company stock? Do they have a plan to manage that concentration risk?
About The Author
Marc Lowe is the Founder & President of In The Money Retirement Planning. He is a Certified Financial Planner and member of NAPFA National Association of Personal Financial Advisors, XY Planning Network & Fee-Only Network. He works with retirees and those approaching retirement. He has over a decade of experience helping these folks grow their net worth, organize their finances and build better lives for themselves and their families.
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