There’s a form of financial risk that rarely comes up in conversations about investing, yet it affects a considerable share of employees with access to equity compensation: building up a significant portion of their wealth in the same company that pays their salary. It happens gradually, almost invisibly, and often feels like loyalty or a reasonable bet on a project you know well. From a financial standpoint, though, it’s one of the most severe risk concentrations a person can take on without realizing it, because it puts both of life’s most important income sources at stake at once: today’s paycheck and tomorrow’s savings.
Why this concentration goes unnoticed
Concentration in market assets is usually easy to spot: just look at the portfolio and see what share a single position occupies. Concentration in your own employer’s stock is different because it arrives through channels that don’t always register as investment decisions. A variable compensation plan paid in shares, a stock option at a preferential price, or simply the convenience of buying shares in a company you know better than any other, accumulate month after month without any conscious decision to “invest here and nowhere else.”
On top of that sits a well-documented psychological bias: we tend to overrate the safety of what we know. Working inside a company creates the feeling of having inside knowledge of its soundness, even though in practice that closeness usually translates into a partial view — focused on day-to-day operations — rather than a real ability to anticipate the strategic, sectoral, or market risks that drive the share price over the long run.
What’s more, many companies actively encourage this build-up as part of their corporate culture, framing it as a way to align employee interests with those of shareholders. The reasoning makes sense from the company’s perspective, which gains a more motivated employee tied to business performance. But that same logic does nothing to protect the employee from the financial risk they’re taking on, and it’s worth not confusing an incentive well designed for the company with an investment decision well designed for the person receiving it.
The double hit: when your salary and your investment share a source
The core problem with this concentration isn’t simply the lack of diversification, which would already be reason enough for caution. It’s that the salary and the investment are correlated: if the company runs into trouble, both tend to deteriorate at the same time. A restructuring, a drop in revenue, or a sector-wide crisis can bring layoffs, a salary freeze, and, simultaneously, a collapse in the value of the shares the employee has been accumulating.
It’s the financial equivalent of skipping both the seatbelt and the airbag: when the crash happens, both protections fail at the same moment, exactly when they’re needed most. Someone who loses their job right when the value of their shares craters faces an urgent need for cash at the worst possible time to sell, sometimes with contractual restrictions that prevent doing so quickly. The most cited cases in financial literature — large companies that collapsed, taking down both the jobs and the savings of their workforce — are not isolated exceptions, but the extreme example of a risk that, on a smaller scale, is present in any concentration of this kind.
How it builds up in practice
In Spain, the most common route is flexible compensation with a variable portion paid in shares, or participation in employee stock purchase plans, especially common at listed companies and in the tech sector. Stock options, which grant the right to buy shares at a price set in advance, and restricted stock units (RSUs), delivered directly to the employee after a vesting period, are also common.
On top of these explicit channels sits a less obvious one: voluntary savings. Some employees, convinced of the quality of the project they work for, put part of their personal savings into buying more shares of the company outside of any compensation plan, reinforcing a concentration that already existed through other means. The result, over the years, can be a portfolio in which a single company represents a share of total wealth far higher than any advisor would recommend for a single asset.
How much is too much: a practical benchmark
There’s no universal figure, but common practice among financial advisors offers a useful benchmark: once a single stock exceeds somewhere between 10% and 15% of total investable wealth, the concentration risk starts to outweigh the potential benefit of holding the position. Above 20%, most advisors would recommend actively working to reduce it, unless legal or contractual restrictions temporarily prevent doing so.
It’s worth calculating this percentage against investable wealth — excluding the primary residence and the emergency fund — and reviewing it as often as the rest of the portfolio, because the share can grow quickly if the stock rises in price or if new share grants arrive periodically. A position that was a reasonable 8% two years ago can easily become, without any active decision along the way, 25% of total wealth today.
This effect is especially pronounced when the company is doing well: a steadily rising share price increases the position’s weight in the portfolio at the same pace, so the company’s own success pushes the employee toward ever-greater concentration, right when the temptation to leave it alone — “it’s working, why touch it” — is strongest.
How to reduce the concentration without creating a new problem
The conceptual solution is simple — progressively sell off the excess concentration and reinvest in diversified assets — but executing it requires care, mainly for two practical and tax-related reasons. First, selling everything at once can generate a large capital gain concentrated in a single tax year, with a corresponding impact on the applicable savings tax bracket. Spreading sales across several tax years tends to be more efficient than liquidating the whole position at once.
Second, it helps to set a systematic rule rather than relying on intuition about the right moment to sell: for example, automatically selling a fixed percentage of every new share grant as soon as it’s received, or setting an upper concentration limit that triggers a partial sale once crossed. This approach avoids the common bias of postponing the sale in hopes the stock keeps rising — which is precisely the reasoning that tends to let the concentration get out of hand in the first place.
The natural destination for the freed-up capital is a diversified portfolio, consistent with the employee’s other financial goals, and not necessarily assets from the same sector, which would reintroduce much of the risk the sale was meant to reduce.
It also helps to separate the investment decision from the emotional one. Selling shares in the company you work for is not a vote of no confidence in your employer, any more than an insurance policy is a bet that something bad will happen. Both are simply ways of managing risk that exists whether or not you choose to acknowledge it.
What to do when you can’t sell
Sometimes legitimate restrictions apply: lock-up periods after an IPO, trading windows limited by executive status or access to inside information, or vesting clauses tied to certain compensation plans. When an immediate sale isn’t possible, two measures are still within reach for most employees.
The first is offsetting the concentration elsewhere in the portfolio, avoiding added exposure to the same sector through additional funds or stocks, even if the existing position can’t be trimmed. The second is strengthening the liquidity cushion outside the company — the emergency fund and short-term savings — precisely because, if the double-hit scenario materializes, that cushion is what allows a potential job loss to be weathered without depending on selling shares at the worst possible moment, when their price has likely already been hit.
Either way, the first sale opportunity available after a restriction lifts should rarely be used to buy more shares of the same company. Commitment to a professional project and prudence with one’s own savings don’t have to be at odds, and drawing a clear line between the two is probably the most important financial lesson to take from this rarely discussed risk.
It’s also worth making this review a habit at least once a year, for instance around the annual share grant or the general portfolio review. No drastic decision or sudden distrust of the company is needed to act: it’s enough to treat the position for what it is — one investment asset among others, subject to the same rules of prudence as any other — rather than an automatic extension of the employment relationship that’s simply left to grow unchecked.
