How to Manage a Concentrated Stock Position from Years of Equity Comp

Building a concentrated stock position through equity compensation seldom occurs overnight. Rather, it’s an ongoing accumulation. Every quarter, when your RSUs vest or you exercise your company stock options, your company holdings grow automatically. What started as a rewarding workplace benefit can quietly become a source of financial risk.

If you don’t actively manage this steady accumulation, a sudden market downturn could wipe out all of your hard work. Below, we’ll help you assess exactly where your wealth currently stands. When you match your specific situation to the proper concentrated stock position strategies, you can pursue a more diversified portfolio while recognizing that no strategy can eliminate investment risk.

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Why a Concentrated Position is Riskier Than it Looks

Holding a simple stock leaves you exposed to severe volatility. According to data from J.P. Morgan, over 40% of all Russell 3000 companies experienced a 70% drawdown and never recovered¹. Past market data is not indicative of future performance. 

As an employee with equity compensation, you face a perilous double-exposure. Your salary, bonus, and career growth are already tied to your employer. When you keep a concentrated stock position, your long-term wealth depends on the same entity. As such, if your company is struggling, your stock value plummets at the same time your job may be at risk.

To evaluate these concentrated stock position risks fully, you need to understand how much exposure your portfolio carries.

How Concentrated is Too Concentrated?

Many advisors begin treating a single-stock position of roughly 10%–20% or more of investable assets as concentrated, although the appropriate level depends on the investor’s specific circumstances. To determine how concentrated your stock should be, run through this three-step diagnostic:

• What percentage of net worth is in company stock? This specific number dictates your immediate risk level and urgency.
• What is your cost basis? This tells you how tax-efficient your potential selling strategies will be.
• Are you still receiving new grants? If yes, your risk exposure grows automatically every quarter.

Know Your Equity Comp Type Before You Plan

Successful stock planning requires identifying your exact grants, as tax rules vary widely by asset type. 

Before choosing a strategy, you should review the specific equity compensation types (RSUs, ISOs, and NSOs) in your portfolio to avoid unexpected tax bills at vesting or exercise.

The Constraint Most Articles Skip: Trading Blackout Windows

If you’re an executive or have access to material non-public information (MNPI), corporate insider trading policies likely restrict your sales to a few brief windows each year. You can’t simply sell shares whenever you want.

To solve this, you can implement a Rule 10b5-1 trading plan. This pre-scheduled plan automatically executes trades according to set parameters, even during corporate blackout windows. However, 2023 SEC updates mandate a strict cooling-off period after adoption, meaning you need to coordinate early with your company’s compliance department.

Strategies for Diversifying a Concentrated Position

The best path forward depends entirely on your initial diagnostic answers. Most executives and employees need a combined approach to mitigate risk. You can consider several tailored options to pursue diversification of a concentrated stock position while using modern concentrated stock position strategies to manage wealth-related risks.

Systematic Selling with Tax-Loss Harvesting

A gradual, phased selling schedule spreads your capital gains liability across multiple tax years. This can reduce the risk of a significant single-year tax spike pushing you into the highest brackets. To reduce the after-tax cost of your sales, you can pair this liquidation with tax-loss harvesting by selling underperforming assets elsewhere in your portfolio to offset your gains. 

If you face insider restrictions, you can use this system automatically through a Rule 10b5-1 plan while staying mindful of standard long-term capital gains tax rates.

Tax-Deferred Diversification

When the immediate tax cost of selling shares is too high to absorb, you have two primary alternatives.

 First, you can utilize a concentrated stock position exchange fund to contribute your appreciated shares into a diversified partnership without triggering immediate capital gains. However, these funds usually require a seven-year lock-up period.

Alternatively, you can use direct indexing to buy individual stocks that closely mirror a broad index while underweighting your company stock, creating automated tax-loss harvesting opportunities to offset your concentrated gains over time.

Charitable Giving

If philanthropy is already one of your personal financial goals, donating appreciated shares directly to a donor-advised fund (DAF) or charity may allow you to avoid capital gains taxes on donated shares, subject to applicable tax rules.

You may also be eligible for a charitable deduction based on the stock’s fair market value at the time of your donation, which may reduce concentrated risk and support your philanthropic goals.

Conclusion

Managing a high-value equity position is an active, ongoing process. Every new vest adds more shares to your portfolio automatically, so ignoring the concentration means your risk grows every quarter by default. A prudent approach involves matching a diversification strategy to your specific cost basis, vesting timeline, and trading constraints.

To discuss how a personalized liquidation and tax plan may fit your circumstances, speak with a Savvy fiduciary advisor about your equity compensation. You can also learn more about pre-liquidity equity compensation planning by reading our guide on managing equity compensation through an IPO.

Frequently Asked Questions

What is a concentrated stock position?

A concentrated stock position occurs when a single company's stock makes up a large share of your total investable assets, often 10% to 20% or more. This often happens automatically to corporate executives and employees who accumulate large quantities of shares over several years through ongoing equity compensation grants.

How do I diversify a concentrated stock position without selling?

You can use tax-deferred strategies like an exchange fund, which lets you contribute appreciated shares into a diversified pool with other investors. Alternatively, direct indexing lets you build a personalized portfolio that mirrors a major index while intentionally underweighting your specific company stock to offset the risk.

What are the risks of holding a concentrated stock position?

Holding one stock exposes your wealth to extreme volatility. Data shows over 40% of Russell 3000 companies have suffered permanent 70% drawdowns.² Past market data is not indicative of future performance. Additionally, employees with equity compensation face dangerous double-exposure because both their current career income and their long-term investment wealth are tied to the exact same company.

Can I sell RSUs if I'm subject to trading blackout windows?

Yes, you can sell shares legally by implementing a pre-scheduled Rule 10b5-1 trading plan. You must establish this plan while you do not possess material non-public information. A broker then executes your automated sales according to your specific parameters, even during corporate blackout windows.

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