Are you overexposed? Managing the risks of heavy stock holdings

Allworth financial advisor Allison Scoggin, CFP®, explains the risks of heavy stock concentration and provides practical strategies to reduce exposure, diversify, and protect your wealth. 

 

When it comes to investing, I often hear clients say, “I’m doing great—my stock is up,” or “I’ve had this investment for years, and it’s worked for me so far.” And that’s fantastic—until it’s not. Holding a lot of stock in one company, even if it’s performed well, comes with risks that can quickly turn a strong financial position into a shaky one.

If you’ve accumulated a significant amount of company stock—whether it’s from your employer, a long-held investment, or inherited assets—it’s important to ask: Am I overexposed?

Let’s talk about what that means, why it’s risky, and how you can manage it.

What Is Heavy Stock Concentration?

Stock concentration happens when a significant portion of your wealth is tied up in a single company’s stock. Maybe it’s your employer’s stock, shares you’ve inherited, or a favorite company you’ve held for years.

For example:

• Employer Stock: Many executives and employees receive stock grants, options, or purchase shares as part of their compensation.
• Long-Term Investments: You bought into a company years ago, and it’s grown to make up a huge part of your portfolio.
• Inherited Stock: A family member left you shares, and now you’re holding more than you planned.

It might feel like a good thing. The company is thriving, and the stock is performing well. But here’s the catch: when too much of your wealth is tied to one investment, you’re taking on more risk than you may realize.

Why Heavy Stock Concentration Is Risky

1. Company-Specific Risk: What happens if the company underperforms, hits a rough patch, or—even worse—collapses? A sudden drop in stock price could wipe out a significant portion of your wealth overnight. Even great companies aren’t immune to downturns or unexpected news.
2. Lack of Diversification: Diversification spreads your risk across multiple investments. If one company falters, your entire portfolio doesn’t suffer. Holding too much of one stock means your financial health hinges on one outcome.
3. Emotional Attachment: It’s easy to fall in love with a company, especially if it’s your employer or a stock that’s done well for years. But emotions can cloud judgment, and holding on too long could cost you.
4. Missed Opportunities: When your money is heavily concentrated, you may miss opportunities to grow wealth elsewhere—through more balanced investments that align with your goals.

How to Manage the Risks of Stock Concentration

The good news? You have options to reduce risk while still honoring the role this stock has played in building your wealth. Here are steps to consider:

1. Start with Awareness
   Take an honest look at your portfolio. What percentage of your wealth is tied up in a single stock? A general rule of thumb is that no more than 10% of your portfolio should be in any one company. If you’re well above that, it’s time to reassess.
2. Develop a Diversification Plan
   Diversifying doesn’t mean selling everything all at once. Instead, work with your advisor to create a step-by-step plan for reducing your stock position over time. This could include:
   • Gradually selling shares in a tax-efficient way.
   • Reinvesting proceeds into a diversified mix of stocks, bonds, and other assets.
   • Exploring tax-advantaged strategies like charitable giving with appreciated shares.
3. Use a Charitable Giving Strategy
   If you have highly appreciated stock, donating some of those shares to charity can be a win-win. You avoid capital gains taxes, get a charitable deduction, and make an impact for causes you care about.
4. Protect Against Downside Risk
   For those who want to hold onto some of their stock, strategies like options contracts can help protect against big losses. These are more advanced tools, but they’re worth exploring if you’re not ready to let go entirely.
5. Avoid Emotional Decisions
   It’s natural to feel loyal to a company or hesitant to sell a stock that’s been a big winner. But remember: a strong financial plan puts you in control of your future—not one company. Take the emotion out of the equation and focus on your long-term goals.

Balance Is Key

I often tell clients, “It’s great to celebrate the success of a single stock, but let’s not let it take over your financial life.” Managing stock concentration isn’t about making drastic changes overnight; it’s about creating balance, reducing risk, and ensuring your financial plan works for you—no matter what happens in the markets.

If you’re holding a significant amount of stock and aren’t sure how to manage it, let’s talk. Together, we can create a plan to protect what you’ve built, reduce your risk, and set you up for long-term success.

After all, the goal isn’t just to grow your wealth—it’s to keep it safe.

Allison Scoggin, CFP®

Partner Advisor

No matter what changes may happen in life, I believe it’s possible to refocus any situation in a way that helps to create positive change. That is why I love being a financial advisor and helping my clients listen to their inner voice and change their outcomes for the better.

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