When it comes to investing, one foundational principle stands true: you should always understand exactly what you own—and why it belongs in your portfolio. This clarity is crucial for every investment, and this is especially true for stock you receive from your employer.
Many executives and employees take the standpoint of treating employer stock differently from any other investment, or sometimes not an investment at all, because it is received as compensation.
This is precisely why many people fall into the trap of resorting to extreme measures when they encounter unfamiliar or uncomfortable circumstances. In other words, doing things they would not normally be comfortable with, or making financial decisions that would otherwise appear to be out of character.
Typically, this presents itself when inaction leads to excessive concentration in a single investment, and this often results in noneconomic investment decisions. In other words, instead of optimizing for selling at an attractive price, reducing taxes, AND guarding liquidity, people sometimes solve for one of these factors at the expense of one (or both) of the other two.
So, how much company stock is too much? While there isn’t a universal percentage that fits every situation, a practical question to ask yourself is: if you were building your portfolio from scratch, would you deliberately choose to own this much of one company?
If you even have to ask this question, it’s likely that you feel uncomfortable with the answer, and that’s OK. The important piece is deciding upon a reasonable way to handle it.
Here are three key reasons why owning too much employer stock can be problematic:
1. Work stress and financial stress become a feedback loop
Your job already demands your time and energy, but when your financial security is tied closely to your company’s performance, the pressures multiply. A downturn in your employer’s stock price doesn’t just threaten your paycheck—it can also erode your accumulated wealth.
2. Avoid letting a single investment dominate your portfolio’s results
My experience managing large institutional portfolios taught me that no single position should be so large that it can single-handedly sink your returns for the year. Many personal investors overlook this principle when it comes to employer stock, exposing themselves to outsized risk. Your financial stake in your employer should be evaluated with the same rigor and caution as any other investment.
3. Limited flexibility during big stock market events
If you work for a public company, you’re likely familiar with blackout windows—periods when you’re prohibited from buying or selling company stock due to upcoming earnings reports or significant news.
These windows don’t pause for market downturns or economic uncertainty. This lack of agility can leave you stuck with risk exposure precisely when you want to reduce it, or without liquidity when you may need it for personal reasons.
Even those who closely understand company-specific risks often overlook, or underestimate, how much (and how long) macro events can affect employer stock, even for companies that don’t seem to be directly affected by certain economic events.
Earning and owning employer stock should be viewed separately
Holding some company stock is generally positive—it aligns your interests with your employer’s success and rewards your efforts. But, as with many things, moderation matters. The goal is to earn as much company stock as possible—but avoid owning so much that your financial health depends too heavily on a single company.
If you’re concerned about how concentrated your portfolio is in employer stock, that’s an excellent first step. Developing a disciplined, strategic approach to managing this risk often requires professional guidance. To begin putting a strategy in place, let’s get started.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.