Nobody wakes up one day and decides to put forty percent of their net worth into a single stock. It happens quietly, one vesting date at a time, until you look at your accounts and realize your financial future is tied to the fortunes of one company, and you’re not entirely sure how that happened.
If that sounds familiar, you’re not alone, and you’re not careless. You’re just an employee who did well.
What Actually Counts as a Concentrated Position?
There’s no single legal definition, but most advisors start paying close attention once a single holding, usually employer stock, makes up somewhere around ten to twenty percent or more of someone’s total net worth. Above that, a bad quarter for one company can mean a bad year for your entire retirement plan.
The number that matters isn’t a rule. It’s whether you’d still feel financially secure if that one stock dropped by half tomorrow. For a lot of people carrying a concentrated position, the honest answer is no.
How This Happens Without Anyone Deciding It Should
RSUs vest and quietly pile up in a brokerage account nobody checks often. An ESPP quietly buys shares at a discount every six months. An employer match lands in company stock instead of cash. None of these are bad decisions in isolation. The problem is that each one, on its own, feels too small to act on, and the position only becomes obviously oversized after years of this compounding.
By the time it’s large enough to notice, it’s also large enough that selling feels like a bigger decision than it should be.
Why “Just Sell It” Isn’t as Simple as It Sounds
A few things make unwinding a concentrated position more complicated than clicking sell:
Capital gains taxes. Shares that have appreciated significantly can trigger a large tax bill if sold all at once, which is exactly why the position grew large enough to worry about in the first place.
Trading windows and blackout periods. If you’re an executive or otherwise restricted, you may only be able to sell during specific windows, which limits when a plan can actually be executed.
Loyalty bias. It’s genuinely hard to sell stock in a company you believe in, work for, and may have helped build. That attachment is real, and it’s not irrational. It’s just not the same thing as a diversification strategy.
Net unrealized appreciation. If your employer stock sits inside a 401(k), there’s a specific tax rule, known as NUA, that can meaningfully change the math on how and when to move it. This is a case where the standard advice for outside brokerage accounts doesn’t automatically apply.
A Few Tools That Actually Help
Diversifying across tax years, rather than all at once, so you’re not pushed into a much higher tax bracket in a single year.
Tax loss harvesting elsewhere in the portfolio. If the rest of your money is invested in a diversified mix of individual stocks rather than funds, it’s common for a handful of those positions to be down even while the overall portfolio is up. Realizing those losses on purpose, in the same year you’re selling down a concentrated position, can directly offset some of the gain from that sale. This is one of the real advantages of owning individual securities instead of a fund. You can choose exactly which gains and losses get realized, and when, rather than accepting whatever a fund manager decides on your behalf.
A 10b5-1 trading plan, for anyone with insider trading restrictions, which lets you set up a predetermined selling schedule in advance and remove the guesswork about timing.
Gifting appreciated shares to a donor advised fund, for those who are charitably inclined, which can reduce the position while avoiding capital gains tax on the shares given.
A genuine NUA analysis, for company stock held inside a 401(k), before assuming it should simply be rolled into an IRA like everything else.
How This Fits into Spend, Grow, Secure
A concentrated position isn’t a holding to defend forever, and it isn’t something to panic-sell either. It’s a funding source that needs a job.
Consider someone with a large position in employer stock, planning to retire in three years. Rather than selling everything at once or doing nothing at all, the position gets unwound gradually: part of it funds the Spend bucket for early retirement income, part moves into the Grow bucket once diversified, and part covers taxes along the way. The stock stops being a single, all-or-nothing decision and becomes several smaller, more manageable ones.
Hypothetical illustration for discussion purposes only. Individual circumstances and results will vary.
A Douglas County Note
This comes up often in the households we work with in Parker and the broader Douglas County area. Parker has a notably high concentration of residents working in computer and mathematical occupations, and equity compensation is simply part of how many of those careers pay. If a meaningful share of your net worth arrived as RSUs, options, or an ESPP balance, you’re in good company here, and it’s worth a real plan rather than a wait and see approach.
Where to Start
If you’re not sure how concentrated your position actually is relative to everything else you own, that’s usually the first real conversation worth having, before deciding what, if anything, to do about it.