The Concentrated Stock Trap Every Tech Employee Falls Into

If you work in tech and wonder how much company stock is too much, start by separating two ideas. Believing in your company is a career decision. How much of your net worth sits in one ticker is a financial planning decision. A stock price reflects interest rates, sector rotation, and many other things unrelated to how good the company is.

This article covers six hidden problems of a concentrated stock position and a framework for dealing with them.

Concentration risk: good companies still have bad years

A single stock has roughly 3 times the volatility of the S&P 500, and even the best companies have lost 50% to 80% of their value at some point. Meta dropped from $382 a share in September 2021 to $88 in November 2022, a 77% decline in 14 months.

The test I use: if your company stock fell 70% next year and stayed there, would your financial life materially change? If the answer is yes, you have too much.

Your job and your portfolio become the same bet

When a large portion of your wealth sits in your employer's stock, your paycheck, bonus, unvested RSUs, future raises, and portfolio all depend on the same company. When things go sideways, they move against you together.

In one case I saw, a senior engineer had about $1.5 million in vested stock and $800,000 in unvested RSUs. The stock fell 65%, the unvested grants repriced, and the engineer was laid off, leaving about $500,000 in vested stock and no income.

Taxes on selling RSUs, stock options, and ESPP shares

Many people hold because they expect a large tax bill. The answer depends on how you own the stock:

• RSUs. The full value is taxed as ordinary income at vest, so your cost basis is the vesting price. Selling a freshly vested RSU at the same price adds roughly zero tax in most cases.
• ISOs and NSOs. ISOs offer a chance at long term capital gains, with Alternative Minimum Tax exposure if you exercise and hold. NSOs create ordinary income on the spread the day you exercise.
• ESPP. The discount, usually 15%, is taxed as ordinary income. That discount is the win, and carrying concentration risk to chase a 5% tax savings is rarely a good trade.
• Founder and pre IPO stock. Qualified Small Business Stock, when it applies, can exclude up to $15 million of gain per shareholder under the rules expanded in 2025. That planning has to start years before a liquidity event.

Paying 23.8% federal capital gains to bring a 30% position down to 10% is often a better outcome than paying nothing and watching that position fall 60%. You have to do the math in both directions.

Why selling company stock is psychologically hard

Most concentrated positions are held too long for reasons unrelated to taxes. The price where you bought or vested starts to feel like a floor. Selling and watching the stock rise hurts about twice as much as selling and watching it fall feels good, so doing nothing feels safe. And because you work there, selling can feel disloyal. A good plan automates the decision so you are not making it under stress.

Liquidity and estate planning gaps

You cannot pay a mortgage in unvested RSUs. A tech employee with $3 million on a brokerage statement, 80% of it in one stock, can be more financially fragile than a couple with $400,000 in a diversified portfolio they can access on any given day.

Heirs get a step up in cost basis on stock held in a taxable account, but that only helps if the estate is structured properly and beneficiaries are coordinated across every account. I often see outdated beneficiaries, and RSU and ESPP accounts with no transfer on death registration, which can leave a family waiting months for probate.

A framework for reducing a concentrated stock position

1. Set a target concentration. A common rule of thumb among advisors is that no single position should exceed 10% of your investable net worth, and many would argue 5%. The number matters less than having one.
2. Build a systematic exit. A Rule 10b5 1 plan sells a fixed number of shares on a predetermined schedule regardless of price, and it gives insiders legal protection. Otherwise, a simple calendar based selling plan does the same job psychologically.
3. Use the right tools. Direct indexing can generate tax loss harvesting to offset gains, and exchange funds let high net worth investors swap into a diversified portfolio without an immediate taxable event. None of these is the answer by itself.
4. Coordinate with everything else. Your equity strategy has to fit your tax bracket, other income, debt, family situation, charitable goals, and estate plan.

Common questions

How much company stock is too much?

A common rule of thumb is that no single position should exceed 10% of your investable net worth, and many advisors would argue 5%.

Do I owe more tax if I sell RSUs right after they vest?

In most cases, roughly nothing more. RSUs are taxed as ordinary income at vest, so the capital gain is only the appreciation since vest.

What is a 10b5 1 plan?

It is a predetermined schedule to sell a fixed number of shares each month or quarter, regardless of price, with legal protection if you are an insider.

VDB Wealth is a registered investment adviser. Information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not indicative of future performance.

Here are two sentences that can both be true at the same time.

I am incredibly bullish on the future of my company.

I am realistic about what its stock can do to my personal financial situation.

If you work in tech, and a large chunk of your wealth is sitting in your employer's stock, this video is for you.

Because the most expensive mistake I see smart, well paid tech employees make is treating those two sentences as if they were the same sentence. They are not.

Believing in your company is a career decision. How much of your net worth sits in one ticker is a financial planning decision. They have almost nothing to do with each other.

In the next 15 minutes I'm going to walk you through the six hidden problems of holding too much company stock, the ones that almost never show up in a brokerage statement, and a real framework for thinking about how much is too much.

Stick around to the end. The last one is the one that quietly costs the most.

About me

Quick intro. I'm Andy VandenBerg, founder of VDB Wealth.

We help tech professionals and executives navigate equity compensation, concentrated stock positions, and the long range financial planning that has to wrap around all of it.

I built this firm because the financial advice most tech employees get is either generic or transactional, and both miss the actual problem.

Roadmap

Here's the map. Six hidden problems, then a framework, then what to do next.

Each one shows up at a different stage of your career and a different size of your equity position. You probably have at least two of them right now.

The core framing

Let me set the frame.

If you work at a company you genuinely believe in, that conviction is one of the most valuable things you have. It is the reason you joined. It is the reason you do good work. Hold onto it.

But your stock price is a separate question.

The stock price reflects ten thousand things that have nothing to do with how good your company is. Interest rates. Sector rotation. A miss on a single quarter. A regulatory change. An analyst downgrade. A risk off year in the broader market.

And here's the part nobody likes to hear.

The single best year in your company's history, the year revenue grew the fastest and the product shipped on time and the team was firing, can still be the year the stock drops 40 percent. Because the stock had run too far ahead of the fundamentals the year before.

That is the gap between belief and price. And the math of your personal financial life lives in the gap.

So with that out of the way, let's get into the six hidden problems.

Problem one: concentration risk

The most obvious one. And the most ignored.

A single stock has roughly three times the volatility of the S&P 500. Even the best companies have lost 50 to 80 percent of their value at some point.

This is not a story about bad companies. This is a story about good companies on bad days.

In late 2021 and through 2022, the strongest names in tech took drawdowns that, on a personal balance sheet, look like a hurricane.

Meta dropped from $382 a share in September 2021 to $88 in November 2022. That is a 77 percent decline in 14 months at one of the most successful companies in the world.

Netflix went from $700 to $166 in roughly six months. Snap fell almost 90 percent. Peloton fell more than 95 percent and most of its employees were holding ESPP shares and RSUs at the highs.

Now back up further.

Enron in 2001. At its peak the stock traded around $90. Inside the company, roughly 62 percent of the average employee's 401k was in Enron stock. The stock went to pennies in less than a year.

Lehman Brothers, 2008. Bear Stearns, 2008. Employees who had built up significant stakes through years of compensation lost most of their net worth in weeks.

Not because they were greedy. Because they trusted the company they worked at and never thought about the question, what if I'm wrong.

Here is the only test that matters.

If your company stock fell 70 percent next year, and stayed there, would your financial life materially change?

If the answer is yes, you have too much. That is the start and end of it.

Problem two: career and portfolio

This one almost never gets discussed and it is arguably the biggest risk on the list.

When you work at a public tech company and a large portion of your wealth sits in that same company's stock, you have stacked two bets on top of each other.

Your paycheck depends on the company doing well. Your portfolio depends on the company doing well. Your unvested RSUs depend on the company doing well. Your bonus depends on the company doing well. Your future raises depend on the company doing well.

If the company has a great decade, you win on all six lines and life is good.

But the moment things go sideways, every one of those lines moves against you at the same time.

Layoffs come during the drawdown. Refreshers shrink. Unvested RSUs get repriced or canceled. Your bonus goes to zero. Your vested stock is worth half. And the job market for your role has cooled because the whole sector is cutting.

I have seen this play out, in real time, three or four times in the last three years.

A senior engineer at a public tech company who had built up around $1.5 million in vested stock and another $800,000 in unvested RSUs.

The stock fell 65 percent. The unvested grants repriced. The team did a layoff and the engineer was caught in it.

The two point three million dollar position on the brokerage statement collapsed to about $500,000 in vested stock, no income, and a job search in a soft market.

Same person. Same skills. Six months earlier, almost untouchable.

The whole point of a financial plan is that when one thing breaks, the rest of the plan keeps you safe.

If your job and your portfolio break together, you do not have a plan, you have a bet.

Problem three: the tax trap

This is the one that locks most people in place.

They know they are too concentrated. They have done the math. And then they think, if I sell, I owe the IRS a fortune. So I just hold.

That hesitation is real, and it is also one of the most expensive forms of inaction in personal finance.

Let's actually look at it across the four ways most tech employees own company stock.

One. RSUs.

When your RSUs vest, the full value is taxed as ordinary income, right there, that day. You already paid tax on the full price. That means your cost basis is the vesting price.

If you sell a vested RSU at the same price it vested at, your additional tax is roughly zero.

You read that right. Most people think they owe tax to sell. On freshly vested RSUs, in most cases, you owe nothing more. The capital gain is just the appreciation since vest.

Holding to “avoid taxes” on RSUs is, more often than not, a story you tell yourself.

Two. ISOs and NSOs.

This is where it gets harder.

ISOs have a chance at long term capital gains and Alternative Minimum Tax exposure if you exercise and hold. NSOs hit you with ordinary income on the spread the day you exercise.

Once exercised and held more than a year, your gains above the exercise price qualify for long term capital gain treatment, which is 15 or 20 percent federal plus the 3.8 percent Net Investment Income Tax for higher earners.

There are real strategies here. Exercising in lower income years, ladder exercises, AMT credit recovery, and 83(b) elections at startups. Each one can save tens or hundreds of thousands of dollars.

Three. ESPP.

Your discount, usually 15 percent, is taxed as ordinary income.

The qualifying versus disqualifying disposition rules can turn a chunk of gain into long term capital gain treatment if you hold long enough.

But here's the trap. Most ESPP buyers turn around and let the position grow, then refuse to sell because they are now sitting on long term gains.

The 15 percent discount is the win. The concentration risk you carry to chase a 5 percent tax savings is rarely a good trade.

Four. Founder and pre IPO stock.

This is its own world.

Section 1202 Qualified Small Business Stock, when it applies, can exclude up to $15 million of gain per shareholder under the rules expanded in 2025. That is a planning conversation that has to start years before the liquidity event, not the week before.

Exchange funds, charitable remainder trusts, and qualified opportunity zones all live here too. They are powerful, they are complicated, and they are time sensitive.

The tax tail should not wag the diversification dog.

Paying 23.8 percent federal capital gains on a 30 percent position to bring it down to 10 percent is often a much better outcome than paying nothing and watching that same position fall 60 percent the next year.

You have to do the math. Both directions.

Problem four: behavioral anchoring

Now we get to the part of the brain finance textbooks do not cover well.

The reason most concentrated stock positions get held too long has nothing to do with taxes. It has to do with how the human brain handles a position you already own.

Cost basis bias.

You bought, or vested, at a price. You watched the price go higher. Now that price feels like the floor, even though it is just a number on a screen.

You decide, I'll sell when it gets back to a certain price. The price never gets back. Three years later it is half of that. You held the entire ride down.

Hindsight bias.

You remember the time you almost sold and the stock then doubled. You forget the three times you held and the stock fell. The wins get etched in. The losses get explained away.

Loss aversion.

The pain of selling and watching the stock go up the next month is, in your brain, about twice as bad as the pleasure of selling and watching it go down.

So you do nothing. Doing nothing feels safe. Doing nothing in a concentrated position is the riskiest thing you can do.

Identity and loyalty.

You work there. You believe in the mission. Selling feels like quitting before you have quit.

This is the one almost nobody admits, and the one that costs the most.

Your loyalty belongs to the work. It does not belong to the line item on a brokerage statement.

A good plan automates the decision so your brain does not have to make it under stress. We'll get to that in the framework.

Problem five: liquidity and life events

This one is quieter and it bites in a very specific way.

You can't pay your mortgage in unvested RSUs.

You can't use a concentrated stock position to fund the down payment on a house if it is sitting at a 50 percent loss the month you need to close.

You can't fund private school tuition, IVF, an elder care need, or a divorce settlement out of a position that is illiquid, locked, or down sharply right when you need the cash.

I see this most often with engineers in their 30s and 40s who have done well, look rich on paper, and find themselves with surprisingly little flexibility when life happens.

A senior tech employee with $3 million on the brokerage statement, 80 percent of it in one stock, can be more financially fragile than a teacher couple with $400,000 in a diversified portfolio. Because the teacher couple can actually access their money on any given Tuesday.

Diversifying part of the position is not just about return. It is about converting a single stock into a set of buckets you can actually use.

A short term reserve. A house fund. An education fund. A long term portfolio. Each one is designed to be there when its job comes due.

Problem six: estate and beneficiary gaps

This is the one almost no one in their 30s and 40s thinks about, and it is often where the largest dollar mistakes happen.

If you die holding a concentrated stock position in a taxable account, your heirs get a step up in cost basis to the value on the date of death. That can wipe out decades of embedded gain in a single moment.

That sounds great, and it can be a real planning lever. But it only helps if the estate is structured properly, the beneficiaries are coordinated across every account, and the family knows what to do when the time comes.

The mistakes I see most often.

A founder who has never updated the beneficiary on the old brokerage account from their college roommate.

A senior executive whose RSU plan and ESPP have no transfer on death registration, so the family has to wait months for probate to access the largest single asset in the estate.

A couple who never wrote down the plan for what should happen to the concentrated position if one of them is gone, and the surviving spouse, in shock, makes a decision under pressure that costs the family a million dollars.

Estate planning around a concentrated stock position is one of the highest leverage hours of work in personal finance. It is also one of the most ignored.

The framework

So what do you actually do.

Step one. Set a target concentration.

A common rule of thumb among advisors is that no single position should exceed 10 percent of your investable net worth, and many would argue 5 percent.

Pick a number that lets you sleep. Write it down. The number itself matters less than the fact that you have one.

Step two. Build a systematic exit.

This is where Rule 10b5 1 plans come in.

You can set a predetermined schedule to sell a fixed number of shares each month or quarter, regardless of price. It removes the daily decision. It also gives you legal protection if you are an insider.

Outside of insider rules, a simple calendar based selling plan does the same job psychologically. You make the decision once, while calm, and then you execute it.

Step three. Use the right tools for your situation.

Direct indexing in your diversified bucket can generate ongoing tax loss harvesting to offset the gains you realize on the way out.

Exchange funds let high net worth investors swap a concentrated position into a diversified portfolio without an immediate taxable event.

Charitable remainder trusts and donor advised funds can convert appreciated stock into philanthropy, income, and a tax deduction in one move.

For founders, QSBS, opportunity zones, and installment sales can dramatically change the outcome at exit.

Each of these is a real tool. None of them are the answer by themselves.

Step four. Coordinate with everything else.

This is the part most people skip and it is the part that matters most.

Your equity comp strategy has to fit your tax bracket this year, your tax bracket next year, your income from other sources, your debt, your real estate, your family situation, your charitable goals, and your estate plan.

Done in isolation, every one of these tools is fine. Done in coordination, they are a multiplier.

Call to action and close

Here's the close.

If you took one thing from this video, let it be this.

Being bullish on your company and being smart about how much of your net worth lives in your company's stock are two completely separate decisions.

You are allowed to be all in on the mission and still diversify the position. You are allowed to love where you work and still build a financial plan that does not break if the stock does.

If you want to dig in further, the best thing you can do is leave a comment under this video.

Ask me about your specific situation. RSUs at a public tech company. ISOs at a private one. ESPP timing. Founder shares.

I read everything in the comments and I'll do my best to answer in a way that is useful for you and for everyone reading.

If your situation is more involved and you would rather have a real conversation, you can find me at vdbwealth.com.

If this video was useful, hit subscribe.

The next one is going to dig into exchange funds, what they actually are, who they make sense for, and the parts the brochures do not tell you.

Thanks for watching. I'll see you in the next one.