Concentrated Stock: How to Manage Single-Company Risk
Most people don’t end up with a concentrated stock position on purpose. It happens gradually — years of stock vesting, an employee stock purchase plan you kept meaning to trim, options you exercised and held onto, or a family holding passed down over the years. Then one day you look at your total net worth and realize a single stock makes up 40%, 60%, even 80% of it.
If that sounds familiar, you’re in good company — and you’re not in trouble. It just means it’s time for a plan.
Here in the Bay Area, we see this constantly, and 2026 is only making it more common. Clients across tech and biotech are watching years of equity compensation turn from paper wealth into something closer to real, spendable money as IPO timelines take shape. That’s a wonderful position to be in — and it’s exactly the kind of situation where good planning needs to start before the liquidity event, not after.
Why One Stock Can Quietly Become a Risk
Here’s a rule of thumb we come back to often: once a single holding grows past roughly 10–20% of your investable net worth, it stops behaving like an investment and starts behaving like a bet. That’s true even when it’s a company you love and believe in — no business, however well-run, is immune to a rough year, a leadership change, or a shift in its industry. Diversifying isn’t a vote against the company. It’s protection against the risk none of us can predict.
Once a single holding exceeds 10–20% of your net worth, it stops behaving like an investment — and starts behaving like a bet.
If you also work for that company, the stakes are higher still: your paycheck and your portfolio are tied to the same outcome. And if you’re coming out of an IPO, a lockup period (typically 180 days) may keep you from selling even if you wanted to.
Four Ways to Ease the Risk
1 Selling gradually, on a schedule.
If your shares are liquid, selling in planned increments — instead of all at once, or not at all — spreads the tax bill across years and takes the emotion (and the temptation to “wait for a better price”) out of the decision. A 10b5-1 trading plan does this automatically, on a schedule you set in advance. It’s especially useful right after a lockup period ends.
2 Be tax-smart about a big, embedded gain.
If you’ve held the stock a long time and have a significant unrealized gain, a few paths are worth exploring together: using an exchange fund to swap concentrated stock for a diversified basket without triggering a sale, pairing a sale with tax-loss harvesting elsewhere in your portfolio to offset the gain, or donating shares to a donor-advised fund (support the causes you care about while avoiding the capital gains hit).
3 Consider hedging — with eyes open.
Protective puts or collars can limit downside risk on a position you’re not ready, or able, to sell, which can help during a lockup period or when you have another reason to hold. That said, plenty of company stock plans restrict these strategies, so this is very much a “let’s check together” step, not a do-it-yourself one.
4 Understand how your shares are actually taxed.
Pre-IPO equity, tender offers, secondary sales, RSU vesting, and Qualified Small Business Stock (QSBS) are all treated differently under the tax code — and the rules around several of these changed meaningfully in 2025. If it’s been a while since someone walked through your specific mix, it’s worth a fresh look. The difference can be significant.
What Matters Most
None of this is about predicting where a stock is headed — nobody can do that reliably, including us. It’s about making sure that if it does go the wrong way, it doesn’t take your whole financial picture down with it.
The clients we’ve seen navigate this best are the ones who built a plan while things still felt comfortable — not after a lockup expired and the decision suddenly felt urgent.
DISCLAIMER: Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this (article) serves as the receipt of, or as a substitute for, personalized investment advice from Elmwood Wealth Management. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.