The hidden risk in the portfolio
Many rode the wave, with net worth tied up in GOOG, META, NVDA, or AMZN. Unvested equity turned into life-changing money. But that often comes with anxiety. Tech workers commonly describe checking their portfolio before market open, watching their children's college funding fluctuate based on a single earnings call.
rule of thumb:A widely cited guideline from major financial institutions is that a single stock making up more than roughly 5-10% of a portfolio may represent overconcentration — Schwab cites a 10% threshold while Fidelity uses an even stricter ~5% guideline. Yet according to Charles Schwab's 2025 Equity Compensation Plan Participant Survey, participants report that company stock makes up about one-third of their overall investment portfolios on average — and for senior employees with larger grants, concentration can be significantly higher. This is a general observation, not a recommendation for any individual.
The psychology: Why we don't sell
A common framing question financial planners use: if someone received $2,000,000 in cash, would they choose to invest it entirely in their current employer's stock? When the answer is no, continuing to hold a concentrated position of equivalent size is a behavioral decision, not a financial one. Three psychological traps are common:
The FOMO Trap: Fear that selling now means missing further upside.
The Loyalty Trap: Belief in internal product roadmaps that the broader market hasn't priced in.
The Tax Tail Wagging the Dog: Reluctance to trigger long-term capital gains, the NIIT, and state taxes.
Volatility vs. Sequence of Returns Risk
What basic calculators assume
Most free retirement calculators assume a flat 7% or 10% annual return, which doesn't reflect how a concentrated single-stock position actually behaves.
What single stocks actually do
A drop in a concentrated single-stock position right before or during retirement amplifies sequence of returns risk, because withdrawals come from a less-diversified base that has less ability to recover.
4 Frameworks for Unwinding Positions
(Concentrated)
(After-Tax Proceeds)
Direct Selling & 10b5-1 Plans
The cleanest way to prevent concentration from getting worse is to stop adding to it. RSUs are taxed as ordinary income the moment they vest. Whether the stock is held or sold immediately, the tax bill on that vesting day is exactly the same. Common approaches include directly selling upon vest, or setting up automated 10b5-1 trading plans for those subject to trading windows, to systematically redirect proceeds into a diversified portfolio.
Considerations: 10b5-1 plans require advance setup and, under amended SEC rules, a cooling-off period of up to 90-120 days for directors and officers (30 days for others) before trades can begin. Selling does not eliminate market risk on already-vested shares and may trigger taxable events outside the vesting day.
Strategic Tax-Lot Harvesting
For shares held over multiple years, "tax lots" - batches of shares bought or vested at different prices - are created. Selling shares that have the smallest gains minimizes the immediate tax hit. Pairing this with Tax Loss Harvesting can offset the capital gains generated by selling highly appreciated company stock.
Considerations: Wash sale rules may disallow losses if substantially identical securities are repurchased within 30 days. Specific lot identification generally must be elected at the time of sale. Cost basis tracking errors are common and can lead to unintended tax results.
(Shared Pool)
Portfolio
Exchange Funds
For massive, highly appreciated positions where the tax hit is unpalatable, some accredited investors use Exchange Funds. Single stocks are contributed into a private pool with other executives, receiving a proportional share of the now-diversified fund, deferring capital gains.
Considerations: Exchange funds generally require a seven-year IRS-mandated lockup, accredited investor or qualified purchaser status, and significant minimums. The underlying basket is often tech-heavy and may not provide as much diversification as a broad-market index. Funds carry management fees, at least 20% of assets are typically held in illiquid investments, and early redemption generally returns original contributed shares rather than diversified proceeds.
Stock
(Donation)
Tax
Charitable Remainder Trusts
For charitably inclined individuals, donating highly appreciated stock directly to a Donor-Advised Fund (DAF) or CRT allows the capital gains tax that would otherwise apply on a sale to be avoided while taking a current-year tax deduction. It is one of the few mechanisms in the U.S. tax code that allows appreciated assets to be repositioned for charitable giving without first triggering capital gains tax.
Considerations: Deductions for donated appreciated stock are generally limited to 30% of AGI in the year of donation (with a five-year carryforward). CRTs are irrevocable - the donation is permanent and the remainder ultimately passes to charity. DAFs charge sponsor fees and the donor only retains advisory privileges, not control. These structures only make sense for those with genuine charitable intent.
Modeling the "Tax Spiral"
Anyone manually unwinding a position over multiple years has to account for the Tax Spiral. When pulling $100,000 out of a concentrated position to buy a house or diversify, selling exactly $100,000 worth of stock falls short. The withdrawal must be grossed up to cover the taxes.
The Real Cost of Withdrawing $100k
Total Stock Sold: ~$159,000
Illustrative example only. Assumes a California resident in the top federal bracket, long-term capital gains rate, zero cost basis, and 3.8% NIIT. Individual results will vary significantly based on cost basis, holding period, state of residence, federal tax bracket, AMT exposure, and other personal circumstances. This is not a projection or recommendation for any specific person.
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Important disclosures. This article is for educational and informational purposes only and does not constitute investment, tax, legal, or accounting advice. Nothing in this article is a recommendation to buy, sell, or hold any security, or to adopt any specific investment, tax, or estate planning strategy.
The strategies discussed have significant tax, legal, and financial implications that depend on individual circumstances, including cost basis, holding period, state of residence, income level, and other factors not addressed here. Hypothetical examples are illustrative only, are not based on any specific person's circumstances, and are not indicative of any actual or future result. Statistics and third-party references are believed to be accurate as of the date of publication but have not been independently verified.
Appleseed Planner is an educational financial planning tool. Content on this site is general in nature and does not constitute individualized investment advice. Before implementing any strategy described in this article, consult a qualified financial, tax, and legal professional who can evaluate your specific situation.