Concentrated Stock Risk: When One Company Is Most of Your Wealth
Understanding the Wealth Decision
Concentration often looks smaller than it is because shares, RSUs, options, bonus and career income are recorded separately. Economically, they may all depend on one company and one sector.
Reading Tax, Liquidity and Concentration Together
Measure current shares, vested options and probable vesting.
Add sector exposure in mutual funds and PMS.
Include future income sensitivity in the stress test.
Where Personal Balance-Sheet Risk Builds
A 30% stock fall can coincide with bonus cuts or job risk.
Tax concerns can postpone sales until concentration worsens.
Familiarity with the employer is not independent diligence.
Making the Allocation Decision
Before acting, answer five questions in writing: build a consolidated exposure map; define staged-sale triggers; use tax lots deliberately; diversify by risk driver, not product count; and revisit after promotions and grants.
Diversification is successful when a company-specific shock no longer changes the household plan.
Key takeaways
- Measure current shares, vested options and probable vesting.
- A 30% stock fall can coincide with bonus cuts or job risk.
- Diversification is successful when a company-specific shock no longer changes the household plan.
Related questions
What should an investor verify first?
Measure current shares, vested options and probable vesting.
How does the structure affect the investor’s outcome?
Add sector exposure in mutual funds and PMS.
What is the main downside to test?
A 30% stock fall can coincide with bonus cuts or job risk.
How should the final decision be made?
Diversification is successful when a company-specific shock no longer changes the household plan.
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