The Risk of Holding Too Much Company Stock

Stock awards and other forms of equity-based compensation have become a popular hiring and retention tool. A 2025 survey from equity-management platform Ledgy¹ found that 82% of respondents owned their employers' stock, up from 70% in 2024.

While company stock has the potential to be tremendously rewarding, having too much wealth tied to your employer's performance poses real risks. Should the company's prospects dim, both your job and your portfolio could be on the line.

When a single stock accounts for more than 10% of a portfolio, overconcentration becomes a concern, as very few stocks outperform the broader market over the long term. In fact, only 13% of individual stocks averaged better returns than the Russell 3000^® Index over the past 20 years.²

The position could also overweight your portfolio in a specific sector, which can exacerbate losses if bad news or a changing landscape sours the industry's outlook.

Nevertheless, employees are more likely to hold on to company stock—no matter how much of their portfolio it represents—than to other positions in their portfolios due to behavioral biases and equity compensation plan restrictions, including:

• Emotional attachment: Loyalty to or familiarity with the company may make the stock appear more valuable than it actually is.
• Performance: If the stock has exhibited strong performance, there may be an assumption that such outperformance will persist.
• Tax avoidance: Concerns about substantial capital gains taxes may lead individuals to hold on to shares.
• Vesting schedules: Employees may be restricted from selling because of vesting schedules, blackout windows, or insider-trading regulations.

Being aware of these factors can help you take a more disciplined approach to your employer stock allocation.

When deciding how to manage your employer stock position, taxes are likely to be the biggest concern, especially for individuals in the highest tax bracket. However, the tax considerations differ depending on whether you choose to sell, keep, or give away shares.

Barring blackout periods or other limitations on stock sales, divesting shares is the most effective way to reduce concentration risk. However, selling company stock acquired as equity compensation typically requires you to pay capital gains tax in the year of the sale, so you'll need to plan appropriately:

• A systematic approach can help you avoid a single high-tax sale and remove emotional attachment from the equation. Individuals commonly use 10b5-1 plans to sell a portion of their position during open trading windows, when an employer permits them to buy or sell shares on the open market. These predetermined trading instructions between employees and a broker can include cost basis, date, price, and other triggers.
• Managing sales specifically from a tax perspective, on the other hand, typically involves looking for opportunities to realize capital losses that can be used to offset some of your gains. This strategy, known as tax-loss harvesting, can be undertaken whether making a one-off sale or in conjunction with the aforementioned approach.

If you decide to retain a significant allocation to your employer's stock, you can help reduce its influence on your portfolio's performance by instead adjusting your other holdings. For example:

• Direct indexing—which involves owning the individual stocks in an index rather than owning a fund that tracks the index—allows you to exclude or reduce exposure to your employer's stock or to stocks from the same sector. This solution also provides more opportunities to harvest losses from the individual holdings should you decide to sell a portion of your shares in the future. Keep in mind that there may be fewer opportunities to harvest capital losses over time as stock values appreciate. In addition, direct indexing typically charges higher fees and has higher investment minimums than standard index funds.

• Exchange funds—which involve contributing part of your concentrated stock position to a private partnership in exchange for units in a diversified portfolio—allow you to exchange rather than sell shares, so capital gains taxes are deferred until you redeem your units, typically after a lockup period. However, these funds are sold as private placements, which may limit liquidity, and typically have net worth qualifications that make them inaccessible to some investors.

If you believe you have sufficient resources to fund your retirement without liquidating your company stock and you are comfortable with the associated risk, you may consider using it for legacy purposes though one of several tax-efficient options:

• Pass down your shares as part of your estate: The stock will receive a step-up in cost basis upon your death, which can generate significant tax savings for your heirs. Keep in mind that any appreciation of the stock could potentially increase taxes on your estate.
• Gift shares during your lifetime: Apart from benefiting your heirs prior to your death, this option moves assets out of your estate, potentially reducing estate taxes. However, gift recipients take the original cost basis—known as carryover basis—and will owe capital gains on any appreciation if they sell the shares.
• Donate appreciated stock: If you're charitably inclined, donating shares to a donor-advised fund not only avoids capital gains but also delivers a tax deduction in the year of the donation equal to their fair market value. You could even time the donation to coincide with the sale of some shares to help offset the tax hit on the proceeds. While you may recommend grants to charities, your donor-advised fund may not always be able to fulfill every request.

When managing a concentrated stock position, be sure to do so in the context of the company's long-term prospects, as well as your overall risk tolerance and broader financial and estate-planning goals. Working closely with a wealth advisor can help ensure your strategy evolves in step with your career and your future needs.