Tech Stocks & Your Portfolio: How to Avoid Overconcentration Risk

Why Too Much Company Stock Can Hurt Your Financial Future—And How to Fix It

For many technology professionals, company stock is a significant wealth-building tool. Generous equity compensation—through Restricted Stock Units (RSUs), Stock Options, Employee Stock Purchase Plans (ESPPs), or stock grants—can lead to substantial gains.

However, holding too much company stock can expose your portfolio to excessive volatility, leaving your wealth vulnerable to market downturns, company-specific risks, and unexpected economic shifts.

The Risks of Overconcentration in Company Stock

1️⃣ Lack of Diversification = Increased Volatility

Meta (Facebook) stock lost over 70% in 2022 before rebounding.
Netflix dropped 75% in six months during 2022.
Amazon declined nearly 50% in the same year.

If your portfolio is too concentrated in one stock, a single bad earnings report, regulatory change, or economic downturn could significantly impact your financial security.

2️⃣ Double Exposure: Your Job + Your Investments

Tech professionals face a unique risk:

Your income (salary, bonuses, RSUs) is already dependent on your employer.
Your investment portfolio is also heavily tied to the same company.

How Much Company Stock is Too Much?

Financial professionals often recommend keeping no more than 10-15% of your portfolio in a single stock. If your employer’s stock represents more than 20% of your total portfolio, it’s time to consider diversification strategies.

Strategies to Reduce Overconcentration Risk

1️⃣ Diversify with Thoughtful Evaluation

Assess your company’s growth potential.
Align with your long-term financial goals.
Consider your overall risk tolerance.

2️⃣ Gradual Selling Plans (Systematic Diversification)

Sell a percentage of shares quarterly or annually.
Use proceeds to diversify into ETFs, bonds, real estate, or alternative investments.

3️⃣ Options Strategies for Risk Management

Covered Calls: Generate extra income while limiting downside risk.
Collars: Use covered calls and protective puts to cap losses while preserving upside.
Protective Puts: Lock in a minimum price for shares.

4️⃣ Tax-Loss Harvesting

Example: If you realize a $50,000 gain from selling company stock, you could sell other investments that are down $30,000, reducing taxable gains to $20,000.

5️⃣ Reinvest ESPP Proceeds

Consider selling ESPP shares as soon as they are eligible and reinvesting for diversification.

Final Takeaway: Be Strategic, Not Emotional

Set a target allocation—keep company stock under 10-15% of your portfolio.
Gradually reduce exposure using systematic selling and tax-efficient strategies.
Diversify your portfolio to ensure long-term financial security.