A fast rising employer stock can turn a healthy portfolio into a single bet. The question is not whether to diversify, but how much single stock is acceptable and how to step down without creating a tax mess. Use the thresholds and playbooks below to set position limits, plan rebalancing, and choose tax lots on purpose.
The quiet risk hiding in a great run
Position limits that keep one name from running your life
Think in bands. Pick yours and write it down. These are planning ranges, not advice.
- Green: 0 to 10 percent of liquid net worth in one ticker
- Yellow: 10 to 25 percent requires a written diversification plan and review dates
- Red: above 25 percent is concentrated stock risk. Act now with pre scheduled sales or hedges
Tie limits to liquid net worth, not just the brokerage account, so cash and bond holdings count in the denominator.
A step down plan you can run on autopilot
Convert a vague intention into calendar actions. Keywords used naturally: diversification plan, rebalancing strategy.
- Set caps and triggers
Example caps: 20 percent this quarter, 15 percent by year end, 10 percent next year. Trigger sales whenever the position exceeds the cap by 2 percentage points. - Choose the path to sell
Use quarterly preset sale dates or a sell on vest rule for RSUs and ESPP. Avoid ad hoc decisions. - Pick where proceeds land
Route to a broad index fund mix that restores your target allocation. Rebalance the whole portfolio after each sale. - Add a downside rule
If the stock falls 15 percent from a monthly high while above your cap, sell enough to return to the cap. This prevents a fast drawdown from locking you in. - Review taxes once per quarter
Check realized gains against brackets and plan any charitable transfers or gifting if that fits your situation.
Want to see how different caps change time to target and taxes in the same view? Model the sales schedule and cash flows in Nauma before you execute.
Tax lots that lower the tax bill without stalling the plan
Sell deliberately. Keywords used naturally: tax lot harvesting.
- Use specific identification with your broker so you can pick lots
- Harvest high basis lots first to reduce current gains when stepping down
- Watch holding periods so long term gains rates apply when possible
- Pair sales with losses elsewhere if the year includes losing positions
- Charitable giving of appreciated shares can zero the gain while taking a deduction if applicable
A simple math check before you place the order
Illustrative numbers for a worker with a big employer position.
| Item | Table |
| Liquid net worth | $2,000,000 |
| Employer stock value | $700,000 |
| Current concentration | 35 percent |
| Target cap this quarter | 20 percent |
| Target position at cap | $400,000 |
| Shares to sell today | $300,000 equivalent |
Tax lot plan
- Realized gains if you sell $300,000 of lots with 90 percent basis: about $30,000
- Realized gains if you sell low basis lots at 40 percent basis: about $180,000
- If you need to stay under a gains budget, prioritize the higher basis lots first
Risk checks that keep the plan honest
- Do not let RSU vests or ESPP purchases silently raise the position above your cap
- Cap single stock at a percentage of liquid net worth, not of the equity sleeve only
- Rebalance on a schedule. Waiting for a “better price” often raises risk while you wait
- Confirm that concentrated stock and your job are not the same risk
Common mistakes and fast fixes
- Waiting for a round number to sell. Fix: pre schedule sales by date and cap, not by price.
- Selling only after big drops. Fix: use both upside trims and downside triggers.
- Ignoring taxes until April. Fix: log lot choices at the trade and track realized gains monthly.
- Letting new grants offset sales. Fix: pair each vest with an equal value sale of the same name.
Quick answers before you hit sell
How much single stock is too much
Many set 10 to 15 percent as a hard cap of liquid net worth, with a shorter path to 10 percent if the name is your employer. Above 25 percent is commonly treated as concentrated stock risk that needs action.
Should I wait for long term treatment on all shares
Consider a mix. Sell enough high basis or long term lots to hit the cap now, then roll the rest as long term lots reach their dates.
What if I cannot sell due to blackout windows
Use preset windows and trim more aggressively when open. Consider Rule 10b5-1 plans if eligible.
Can options or collars replace selling
Hedges can help but add complexity and costs. They do not remove employer and job correlation. Use them as a bridge, not a permanent substitute for diversification.
