Concentration Risk and Your Equity Compensation: Seeing the Trade-Offs Clearly
Holding a large slice of your personal wealth in one company’s stock can feel both thrilling and terrifying. In wealth-management jargon we call that concentration risk—and when you receive equity compensation it is easy to drift into it without noticing. The idea sounds simple: if more than about ten to fifteen percent of your net worth sits in a single security, you are probably under-diversified and over-exposed to one set of corporate fortunes. Yet knowing the math seldom makes the next move easy.
Why We Hesitate to Trim Big Positions
Falcon Wealth clients share a long list of emotions and practical roadblocks that slow their decision to diversify:
Loyalty and identity. Selling stock can feel like disowning the very company that built your success.
Optimism—or FOMO. A rising share price tempts you to ride the wave just a little longer, even though momentum can reverse overnight.
Anchoring on peak prices. After a drop, many investors declare they will sell “once we get back to $X,” a target that may never re-appear.
Corporate limits. Post-IPO lockups, blackout windows, Section 16 pre-clearance or insider rules can block sales at the moments you wish you could act.
Tax worries. Exercising options or selling low-basis shares triggers income or capital-gain taxes. Trying to avoid that bill may keep you frozen long after prudent risk-management says “sell.”
Diversification elsewhere. Some professionals hold big retirement or brokerage accounts in broad funds and decide concentration is acceptable—until volatility proves otherwise.
Plain fear of being wrong. Taking decisive action feels riskier than maintaining the status quo, even though inaction is itself a choice.
Four Compelling Reasons to Address Concentration Risk Now
Your capacity for loss
If a sudden 40-percent slide would upend retirement or college plans, trimming the position is not optional, it is urgent.
Double jeopardy
When both your paycheck and your portfolio rely on the same ticker symbol, a corporate stumble can strike income and assets at once. .
Opportunity cost
Every dollar tied to one stock is a dollar that cannot compound in a diversified mix designed to capture global market returns.
Tax windows open and close
Shares that have aged into long-term capital-gain status—or ISO shares that just qualified—offer a low-friction exit. Waiting for "perfect" timing can push you back into a less favorable bracket or fresh holding period.
Action Pathways—Which One Fits?
All-in diversification. Some families decide the risk simply outweighs any upside. They liquidate the entire block, accept the tax cost, and reinvest in a globally balanced portfolio. This choice is common when unvested grants guarantee fresh exposure every year.
Targeted reduction. Others map a schedule to trim shares until the single position equals, say, ten percent of net worth. That might involve selling loss-position lots today, exercising and selling a tranche of NQSOs next quarter, and letting ISO shares age into long-term status before exiting.
Balance of hedge and hold. If you wish to keep a sizeable stake, consider collars, prepaid forwards, or exchange funds to mute downside without triggering tax immediately. Charitably inclined investors sometimes gift low-basis shares to a donor-advised fund, achieving diversification, a deduction, and philanthropic impact in one move.
The best route blends tax analysis, employer-plan fine print, and your personal comfort with volatility. Falcon’s planners model each scenario so you can see the after-tax, after-risk dollars lined up against your life goals.
Ready to Replace Worry with Strategy?
Exiting a concentrated position is rarely a single transaction; it is a coordinated plan covering grants, vesting calendars, blackout dates, and the tax year ahead. Let Falcon Wealth Planning craft that blueprint with you—so the wealth your equity created is protected and working toward the future you choose.
Compliance Disclosure
Falcon Wealth Planning, Inc. (“Falcon”) is an SEC-registered, fee-only investment adviser located in Ontario, California. Registration does not imply a specific level of skill or training. The information presented is for educational purposes and does not constitute personalized investment, legal, or tax advice. All examples are hypothetical and are not guarantees of future results. Investments involve risk and may lose value. Falcon provides advice only after entering into an advisory agreement and only in jurisdictions where it is properly registered or exempt from registration. Consult your own tax and legal professionals regarding your unique situation before acting on any information contained herein.
