I Kept Too Much in Company Stock

This scenario is illustrative and based on patterns observed across multiple transitions. It does not describe any specific individual. It is intended as educational material, not financial advice.

Case Summary

A technology executive accumulated restricted stock units over a 12-year tenure at a single company, allowing vested shares to remain in company stock rather than systematically diversifying. At peak concentration, 73% of their investable assets were in a single stock. They had no 10b5-1 plan, no systematic diversification schedule, no charitable strategy for appreciated shares, and no advisor who had ever provided a structured diversification recommendation. The stock declined 68% over 14 months. The executive retained enough to be financially secure. They later described the loss as "the most expensive financial decision I never made."

The Situation

A technology executive joined a mid-sized software company in their mid-30s at a period of rapid growth. Their compensation included an annual RSU grant vesting over four years. Each year brought a new grant cycle, and as the company's stock appreciated, the value of vested shares grew substantially. They also participated in the company's employee stock purchase plan, adding to the position incrementally each year.

The position accumulated quietly. Each year, shares vested and were reported as ordinary income on the executive's W-2. After vesting, the shares sat in a brokerage account. The executive did not sell them — not from negligence, but from a combination of factors that each felt individually reasonable. The stock had performed well and selling felt like betting against their own company. The tax cost of selling was real and immediate in a way that the concentration risk was not. No advisor had ever presented a specific recommendation to diversify. The culture rewarded optimism, and selling company shares felt incongruent with that environment.

Over twelve years, the concentration grew through this passive accumulation. At peak, approximately 73% of the executive's investable assets — their taxable brokerage account plus company stock held outside of retirement accounts — were in a single stock. The 401(k) was diversified, but it represented a smaller portion of overall wealth. The concentration was not something they had decided; it was something that had accumulated through twelve years of annual inaction.

What Happened

The company faced a combination of sector headwinds, a disappointing earnings revision, and a broader technology market correction. Over fourteen months, the share price fell 68%. The concentrated position, which had represented substantial wealth, was reduced to roughly a third of its peak value. The executive's overall net worth declined materially — not catastrophically, because retirement accounts and other assets provided a floor, but meaningfully enough that plans that had felt secure no longer felt certain.

In the aftermath, working with advisors to reconstruct what a different path might have looked like, the executive discovered something they had not known: the tax cost that had felt like the primary barrier to diversification was manageable if spread across time and paired with offsetting strategies. The obstacle they had perceived was real — but significantly smaller than they had assumed. What had looked like a prohibitive tax bill was, in a properly structured multi-year plan, a manageable cost of significantly reducing risk.

Concentrated stock is one of the planning gaps the Axel Index is designed to surface.

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What Was Missed

A structured concentration review. Concentration risk in a single stock is not a new problem, and the planning profession has developed frameworks for addressing it: what level of concentration is acceptable given total wealth, income sources, time horizon, and risk tolerance; what the tax cost of various diversification paths looks like modeled across time; what strategies exist to reduce concentration without triggering a single large tax event. The executive had financial advisors throughout this period. None of them had ever presented a structured concentration review — a specific analysis of the embedded risk and a plan for addressing it. Without that analysis, the inertia of not selling had no countervailing force.

A 10b5-1 plan. A Rule 10b5-1 plan is a pre-arranged trading plan that may allow corporate insiders to sell shares on a predetermined schedule without running afoul of insider trading restrictions. The plan is typically established when the executive does not possess material non-public information, and then executes automatically according to its schedule. For executives with RSUs who face both concentration risk and insider trading constraints, a 10b5-1 plan is a standard mechanism for systematic diversification. The executive was aware of it in the abstract but had never had a specific conversation about establishing one. The plan was never put in place.

Systematic diversification spread over two to three years. Selling a large concentrated position in a single year creates a concentrated tax event — all capital gains recognized in one year at the applicable rate. Spreading sales over two to three years distributes the tax liability across multiple years, potentially at lower marginal rates in each year, and allows the use of annual capital loss harvesting to offset gains. The executive had mentally modeled the cost of diversification as a one-time event. The actual cost of a spread approach was significantly lower. The barrier was not the tax cost — it was the absence of a model that showed what a spread approach would actually produce.

Charitable giving of appreciated shares. Donating appreciated shares directly to a donor-advised fund — rather than selling shares and donating cash — may allow the donor to take a charitable deduction for the full fair market value of the shares without recognizing the embedded capital gain. For shares with large appreciation, this combination may be meaningful: the charitable intent is fulfilled, the deduction is taken at current fair market value, and the capital gains tax on the appreciation is avoided. The executive had charitable inclinations and made annual cash donations. The possibility of using appreciated shares as the vehicle for those donations — effectively diversifying and fulfilling charitable goals simultaneously — was never raised.

Collar strategy modeling. A collar is an options strategy that combines purchasing a put option (providing downside protection below a specified price) with selling a call option (limiting upside above a specified price) on the same underlying stock. A well-constructed collar may substantially reduce the economic risk of a concentrated position without triggering an immediate sale. Collars are more complex than direct sales and have their own costs and trade-offs, but for executives with very large concentrated positions, they may serve as an effective bridge while a longer-term diversification plan is executed. The executive had not known this tool existed.

What Would Have Changed

The executive later modeled what a systematic diversification plan begun three years before the decline would have produced. The analysis required assumptions about tax rates, prices, and timing, but the directional conclusion was clear: a plan that sold a defined percentage of the concentrated position each quarter over 10 to 12 quarters — paired with charitable gifts of appreciated shares to a donor-advised fund, coordinated with a 10b5-1 plan to manage insider trading requirements — would have reduced concentration from 73% to approximately 25% of investable assets over that period.

The tax cost of that plan, spread across three years and offset by charitable deductions and strategic loss harvesting, would have been real but manageable. And the position that remained at 25% concentration — though still meaningful — would have declined 68% on a much smaller base. The financial outcome would have been substantially different. The same 68% decline that produced a major wealth event would have produced a manageable setback.

The barrier was not the tax cost. The barrier was the absence of a specific plan, presented by an advisor who had done the analysis and was prepared to make a concrete recommendation. That conversation never happened.

The Key Lesson

Concentrated stock positions are not self-correcting. The forces that create them — annual vesting, strong performance, insider trading constraints, tax friction, cultural alignment with the company — also tend to sustain them. Each year of inaction typically adds to the concentration and increases the embedded gain, which in turn makes the perceived cost of diversification higher and the inertia stronger.

Breaking that cycle typically requires a specific intervention: a structured analysis of the concentration risk, a specific plan for reducing it over time, and an advisor relationship prepared to make a direct recommendation rather than a general observation. For most executives in this situation, the tax cost of a well-structured multi-year diversification plan may be significantly lower than they perceive it to be — and significantly lower than the cost of waiting until the market makes the diversification decision for them.

Key Takeaways

Concentration in company stock typically accumulates through passive inaction, not through a deliberate decision to concentrate.
A 10b5-1 plan may allow executives to sell shares on a pre-determined schedule without running afoul of insider trading restrictions — enabling systematic diversification that would otherwise be constrained by trading windows.
The tax cost of diversification is often lower than perceived when sales are spread across multiple years and paired with charitable giving and loss harvesting strategies.
Donating appreciated shares to a donor-advised fund may allow charitable deductions at full market value while avoiding recognition of embedded capital gains.
A collar strategy may substantially reduce the economic risk of a concentrated position without triggering an immediate sale or tax event.
The most common missing element is not information — it is a specific, advisor-presented plan with modeled outcomes.

Common Mistakes

Allowing RSU shares to accumulate in a brokerage account without a formal review of concentration relative to total wealth.
Modeling diversification cost as a single-year tax event rather than as a multi-year plan with offsetting strategies.
Not establishing a 10b5-1 plan during an eligible window, leaving systematic diversification unavailable during restricted periods.
Making charitable cash donations while holding appreciated stock that could have been donated directly, forfeiting a meaningful tax benefit.
Waiting for the stock to reach a specific price target before diversifying — a target that may never arrive, or may only be visible in hindsight.
Having financial advisors who each provide reasonable general guidance but none who owns the concentration risk as a planning priority.

Questions Worth Exploring

What percentage of your investable assets are currently in a single stock, and has an advisor ever quantified the risk embedded in that position?
Do you have a 10b5-1 plan in place, and if not, has there been a specific conversation with an advisor about whether one may be appropriate?
What would a three-year systematic diversification plan look like, and what would the modeled after-tax cost be relative to your current concentration risk?
If you make charitable contributions, are you donating cash or appreciated shares — and has the difference ever been modeled?
If the stock in your concentrated position declined 50%, what would that mean for your overall financial security and near-term plans?

Bottom Line

The most expensive financial decision in this case study was never made — it was the decision that never happened, the conversation that never occurred, the plan that was never presented. Concentration risk in a single stock may grow for years without anyone naming it as a problem requiring a specific plan. When it resolves, it often resolves quickly and without warning. The planning window that may allow a structured, tax-aware reduction of that risk typically closes before most people realize it existed.

The Axel Index is designed to surface planning gaps around concentrated positions — before a market event closes the window.

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Frequently Asked Questions

What is RSU concentration risk?

RSU concentration risk refers to the financial exposure that may arise when a significant portion of an individual's investable assets is held in a single company's stock through restricted stock units. As RSUs vest over time, the position may grow relative to total wealth if shares are not systematically sold or diversified. Single-stock positions typically carry meaningfully higher volatility than diversified portfolios, and a significant decline in one stock can have an outsized effect on overall financial security.

What is a 10b5-1 plan and how does it help with diversification?

A Rule 10b5-1 plan is a pre-arranged trading plan established by a corporate insider at a time when they do not possess material non-public information. The plan specifies in advance the dates, prices, or volumes at which shares will be sold, and sales then execute automatically according to the schedule. Because the plan was established without insider knowledge, it typically provides an affirmative defense against insider trading allegations. For executives with RSU concentration, a 10b5-1 plan may enable systematic diversification during periods — including trading blackouts — that would otherwise prevent sales.

What percentage of my wealth should be in company stock?

There is no universal rule, and the right level depends on overall wealth, income security, time horizon, and individual risk tolerance. However, many financial planning frameworks suggest that a single stock position representing more than 10–20% of investable assets may introduce concentration risk worth a structured review. At 30% or higher, concentration often becomes a planning priority. At 50% or higher, many advisors would consider structured diversification a meaningful planning need. This is educational context only — the right threshold for any individual depends on their specific circumstances.

Does diversifying company stock always create a large tax bill?

Not necessarily. The tax cost of diversification depends heavily on how sales are structured. Spreading sales across multiple tax years may reduce the marginal rate applied in each year. Pairing sales with capital loss harvesting from other positions may offset some recognized gains. Donating appreciated shares to a donor-advised fund may allow a charitable deduction at full market value while avoiding recognition of embedded gains. A collar or hedging strategy may reduce economic risk before or while a longer-term diversification plan is executed. The perceived tax cost is often higher than the actual cost of a well-structured plan.

What is a donor-advised fund and how does it help with concentrated stock?

A donor-advised fund (DAF) is a charitable giving vehicle that allows donors to contribute assets, take an immediate charitable deduction, and then recommend grants from the fund to qualified charities over time. When appreciated stock is donated directly to a DAF rather than selling the stock and donating cash, the donor may take a deduction for the full fair market value of the shares without recognizing the embedded capital gain. For executives with large RSU positions and charitable inclinations, contributing appreciated shares to a DAF may accomplish both diversification and charitable giving goals simultaneously.

What is a collar strategy for concentrated stock?

A collar is an options strategy that involves purchasing a put option (which provides downside protection below a specified price) and simultaneously selling a call option (which limits upside above a specified price) on the same underlying stock. A well-structured collar may substantially reduce the economic risk of a concentrated position without triggering an immediate sale — and in some structures, without immediately recognizing a taxable event. Collars are typically more complex and have their own costs and trade-offs, but they may serve as an effective tool for protecting a position while a longer-term diversification plan is executed.

Why do executives tend not to diversify company stock?

Several factors tend to sustain concentration in company stock. The tax cost of selling is real and immediate, while the concentration risk is abstract and future-oriented. Selling shares can feel incongruent with the optimism that is often part of company culture. Insider trading restrictions limit when and how shares can be sold. And without a specific recommendation from an advisor — one who has done the analysis and is prepared to make a concrete plan — the default position is inaction. Each factor individually may seem like a reasonable basis for deferring — but together they often sustain concentration far beyond what a structured risk analysis would recommend.

What is concentration creep and why does it matter?

Concentration creep refers to the gradual increase in a single-stock position relative to total wealth over time — not through any single decision to concentrate, but through the accumulation of annual vesting events combined with inaction. Each year that RSUs vest and are not sold adds to the position. If the stock price also appreciates, the position may grow on two dimensions simultaneously. The result is that executives who never made a deliberate decision to hold a concentrated position may find themselves with one after years of deferring the diversification decision.

How does spreading RSU sales across multiple years help reduce taxes?

Selling a large concentrated position in a single year may push recognized capital gains into higher marginal tax brackets in that year. Spreading sales across two or three years may keep realized gains in lower brackets in each year, produce a lower aggregate tax liability, allow room for loss harvesting in each year to offset gains, and provide flexibility to adjust timing based on income variability. The total tax paid over a multi-year plan may be meaningfully lower than the total tax that would result from a single-year liquidation — though this depends on individual tax circumstances.

What should I do if I already have a large concentration in company stock?

The appropriate response depends on your specific circumstances — the size of the position relative to total wealth, your tax situation, your company's trading policies, your time horizon, and your charitable intentions. A structured review with advisors who have experience with concentrated positions may help quantify the risk, model different diversification paths and their tax costs, identify charitable strategies that could address both diversification and philanthropic goals, and determine whether a 10b5-1 plan or hedging strategy may be appropriate. This page is educational only and does not constitute financial or tax advice.