The Hidden Risks of a Single Stock Concentration—and How to Diversify Wisely

It often starts quietly. Maybe you bought shares in a company you believed in. Maybe you were rewarded with stock options for years of hard work that compounded over time. Or maybe you simply held on as one investment outperformed everything else in your portfolio. 

Fast forward a few years, and what was once a small allocation has quietly grown into something much bigger. Suddenly, 30%, 40%, or even more of your net worth is tied to a single stock. On paper, it looks like success. In reality, it’s a risk that could derail your financial future. 

At Plancorp, we see this story play out often—especially among executives, business owners, and long-tenured employees. And while concentrated stock positions can feel like a badge of honor, they also represent one of the most overlooked threats to financial independence. 

The good news? With the right strategy, you can reduce concentration risk without blowing up your tax plan or sacrificing your long-term goals. Let’s explore how these concentrations happen, why they’re so dangerous, and what you can do to protect your wealth. 

What Is a Single Stock Concentration? 

A single stock concentration occurs when an outsized portion of your portfolio is tied to one company. There’s no universal threshold, but most planners raise a red flag when more than 10–20% of investable assets are linked to a single security. At 30% or higher, it becomes a dominant planning issue. 

This exposure can exist in: 

• Taxable brokerage accounts 

• Retirement plans 

• Deferred compensation programs 

• Stock options and RSUs 

• Private company shares 

The challenge isn’t just market volatility. It’s the combination of investment risk, income risk, and tax risk—all tied to the same company. 

How Does Single Stock Concentration Happen? 

Most concentrated positions develop through two paths: 

1. Intentional Stock Picking

You researched, you believed, and you invested. Maybe you spotted a high-growth company early or held onto a blue-chip stock for decades. Over time, strong performance can quietly turn a reasonable allocation into a dominant one. What started as 5% of your portfolio can grow to 30% or more without you adding new money. 

2. Employer Stock and Equity Compensation

For executives and long-tenured employees, concentration often comes from equity awards—RSUs, stock options, ESPPs, and performance shares. When your company performs well, these awards accumulate quickly. Without a formal liquidation strategy, your paycheck, benefits, and portfolio all hinge on the same company’s success. 

That creates a unique risk dynamic: if your employer stumbles, both your income and your investments suffer at the same time. 

Why Is Single Stock Concentration So Dangerous? 

Owning individual stocks isn’t inherently wrong. But when one stock dominates your financial life, several risks compound: 

You’re not rewarded for company-specific risk. 

It’s natural to think that taking on more risk might lead to more reward. But when that risk comes from holding too much of one company’s stock, the math doesn’t work in your favor. 

Market risk—the ups and downs of the overall market—earns you higher expected returns over time. Company-specific risk doesn’t. So, if a big chunk of your wealth is tied to one stock, you’re adding risk without adding potential reward. 

Even great companies can stumble. 

Industry leaders today aren’t guaranteed leaders tomorrow. Leadership changes, new technology, shifting regulations, lawsuits, reputational hits, or global events can all turn yesterday’s market darling into tomorrow’s disappointment. 

Take Boeing as an example. For decades, it was considered one of the most stable and successful companies in the market. At its peak, the stock traded above $350 per share—a position that felt as close to a “sure thing” as you could get. Many investors built concentrated positions through stock picking or years of equity compensation, confident that growth would continue. 

But in 2020, that confidence was tested. Boeing’s share price fell to around $95—a staggering drop from its all-time high. And while the broader market has largely recovered, Boeing still hasn’t returned to those previous levels years later. 

The lesson? There’s no such thing as a “golden ticket” stock that never declines. Even companies with long histories of success can face unexpected challenges. If most of your wealth is tied to one stock, a downturn could hit at the worst possible time—right when you need liquidity for retirement, a major purchase, or a family goal. 

Volatility becomes personal. 

When 50% of your wealth swings with one ticker, market moves don’t just affect your portfolio—they affect your lifestyle decisions: retirement timing, major purchases, college funding, charitable giving. Everyday volatility starts to feel like a referendum on your future, amplifying emotional decisions. 

Taxes complicate everything. 

Highly appreciated stock often comes with significant embedded gains. That creates a psychological and financial barrier to selling: 

• “I don’t want to trigger taxes.” 

• “What if it keeps going up?” 

• “I’ll wait for the perfect time.” 

The result? Many investors delay diversification for years—allowing risk to grow even larger.  

How Much Is Too Much? 

There’s no magic number, but here’s a quick guide: 

• 0–10%: Manageable 

• 10–20%: Elevated risk—needs a plan 

• 20%+: A dominant issue requiring immediate attention 

Diversification: Protecting Your Options 

Diversification isn’t about chasing returns. It’s about protecting flexibility and reducing stress. A well-diversified portfolio ensures: 

• No single story controls your outcome 

• Market swings don’t derail life goals 

• Wealth becomes a tool for freedom—not a source of anxiety 

At Plancorp, our investing philosophy is built on these principles. Explore it to see how evidence-based strategies and deep diversification can help you stay confident through all market environments. 

Smart Ways to Diversify Without Blowing Up Your Tax Bill 

Selling everything at once can feel tempting—but it often creates unnecessary tax pain. Instead, consider these strategies: 

Phased Selling with Tax-Loss Harvesting 

Rather than selling your entire position in one go, phased selling spreads the process over several years. This approach allows you to gradually reduce your exposure while managing capital gains in a more controlled way. By pairing sales with tax-loss harvesting, you can offset gains with losses from other investments, reducing your overall tax liability, 

This strategy also introduces discipline during volatile markets. Instead of reacting emotionally to price swings, you follow a structured plan that aligns with your long-term goals. 

Direct Indexing 

Direct indexing takes diversification and tax efficiency to the next level. Instead of buying a single mutual fund or ETF, you own the individual stocks that make up an index.  

Why does this matter? Because it gives you more flexibility to harvest losses at the individual security level. 

For investors with concentrated positions, this can be a game-changer. When you sell part of your concentrated stock, you can use direct indexing to rebuild a diversified portfolio while actively managing taxes. 

Charitable Giving with Appreciated Stock 

If philanthropy is part of your plan, donating appreciated shares can deliver a double benefit: you support causes you care about and eliminate capital gains on the donated stock. This can be done directly to a charity or through a donor-advised fund, which allows you to make a gift now and decide later which organizations receive the funds. 

For families with significant concentrated positions, this strategy can reduce risk while advancing legacy goals. 

Advanced Tools Like Section 351 Exchanges 

For founders, executives, or early investors with large unrealized gains, a Section 351 exchange can be one of the most sophisticated solutions available. In simple terms, it allows you to contribute your concentrated stock to a diversified investment vehicle and receive a diversified portfolio in return—without triggering immediate capital gains taxes. 

This strategy isn’t for everyone. It involves lock-up periods, qualified asset requirements, and ongoing fees. But when it fits, it can provide meaningful diversification without the tax shock of an outright sale. 

The Bottom Line 

Concentration often builds wealth. Diversification helps protect it. If you’re wondering where you stand when it comes to your financial plan, our 2-minute analysis is a great next step.  

You’ll get instant results in four key areas of your financial plan, including your investing strategy—plus personalized insights and curated resources to help you take the plan with confidence.