Your RSUs Aren’t a Lottery Ticket: The Hidden Danger of Concentration Risk
A LinkedIn post went viral recently that stopped us in our tracks. A former employee at a tech company shared his experience of working for years — enduring stress so severe it affected his health — only to walk away with a check for barely over a hundred dollars. That was the “value” of the shares in a company he helped build.
The post resonated with thousands of people because the story is painfully common. Shares that were pitched as life-changing ended up being nearly worthless. Corporate events like stock splits and acquisitions diluted what little value remained. And when leadership moved on, rank-and-file employees were left with scraps.
We’re sharing this story because it hits close to home. Not just for that individual, but for many of the clients we work with every day. Since 2018, the majority of our clients have worked at companies whose stock has mostly gone up. That’s wonderful. But it can also create a dangerous illusion: the belief that company stock only goes in one direction.
It doesn’t. And today, we want to talk about that.
When Belief in Your Company Becomes a Financial Risk
We get it. You work at your company. You see the product roadmap. You hear the CEO’s vision on all-hands calls. You believe in the mission. So when your RSUs vest and you’re sitting on a pile of company stock, the instinct to hold on feels rational. Why would you sell something you believe in?
Here’s where behavioral finance gives us a reality check. In the world of behavioral economics, this tendency has a name: the endowment effect. We overvalue things simply because we own them. When it’s your company’s stock (a company you’ve poured your energy, creativity, and career into) that emotional attachment gets amplified tenfold.
We had a client who experienced this firsthand. He held roughly $2 million in company stock at the time of IPO, when shares were trading well above $100/share. The CEO was bullish. The narrative was compelling. Our client believed in the company and didn’t want to sell a single share. He was convinced the stock would keep climbing.
It didn’t. Since IPO, the stock has mostly traded below $20 per share, a fraction of its debut price. That $2 million position? It evaporated. Not because of bad luck or a market crash, but because of concentration risk — the single biggest threat to wealth that nobody talks about enough.
This is not a story about a bad company or a bad employee. It’s a story about what happens when too much of your financial future is tied to one outcome. And in our experience, the people most vulnerable to this are the ones who are the most passionate about their work. The very loyalty and conviction that makes you a great employee can become the thing that puts your financial plan at risk.
The Emotional Trap: Why Selling Feels Wrong
If you’ve ever hesitated to sell your company stock, you’re not alone. We see it all the time, and it’s rooted in some deeply human instincts.
First, there’s loss aversion. Behavioral economists Daniel Kahneman and Amos Tversky showed that the pain of losing something is roughly twice as powerful as the pleasure of gaining something of equal value. When your stock is up and you’re considering selling, the fear of missing out on further gains can be paralyzing. What if it doubles next year? What if I sell at the worst possible time?
Then there’s the status quo bias, something we’ve written about before on this blog. As Nobel laureate Richard Thaler has noted, people have a strong tendency to go with the default option. If your RSUs vest and land in your brokerage account, the default is to do nothing. And doing nothing feels safe — even when it’s actually the riskier choice.
Finally, there’s social pressure. Selling company stock can feel like a vote of no confidence. Especially in tight-knit startup cultures, there’s an unspoken expectation that you’re a believer. We’ve had clients tell us they felt guilty about selling, like they were betraying their team. But here’s the thing: diversifying your portfolio is not disloyalty. It’s financial maturity.
Think about it this way: If your company paid you a $200,000 cash bonus tomorrow, would you turn around and invest 100% of it into a single stock? Most people would say no. But that’s exactly what you’re doing every time your RSUs vest and you choose to hold.
A Strategy That Takes Emotion Out of the Equation
We recently worked with a client couple on exactly this problem, and it’s a story worth sharing because it illustrates what a disciplined approach can look like.
One member of the couple had left a company where she had accumulated a very sizable position in company stock. After she ceased employment, we were able to help her begin unwinding the position. But we didn’t just sell everything on day one. Instead, we built a structured strategy with a few key principles.
The goal was to reduce concentration as tax-efficiently as possible while removing emotion from the decision. We set a target: bring the stock position down to roughly 20% of liquid net worth over two years. Then we broke it down into quarterly sales of a fixed number of shares, subject to a price floor. If the stock dropped below that floor, we’d pause sales and catch up the following quarter when the price recovered. This wasn’t market timing. It was systematic risk reduction.
The results? In their most recent meeting, the client mentioned that despite a significant drop in the company’s stock price, their overall net worth hadn’t decreased much at all. He credited our team for timing a couple of the stock sales near the peak. While we’d love to take credit for clairvoyance, the truth is simpler: we had a plan, we stuck to it, and the plan worked because it was designed to work regardless of where the stock went next.
That’s the beauty of a rules-based approach. You don’t have to predict the future. You just have to commit to a process that protects you from the downside while still participating in the upside.
What a Good Unwind Strategy Looks Like
Every situation is different, but the core framework we use with clients tends to follow a similar structure. Here’s how we think about it:
Start with a concentration target. We generally recommend that no single stock position should represent more than 5–10% of your total investable net worth. If you’re well above that threshold, it’s time to start planning an unwind.
Set a timeline. Reducing concentration doesn’t have to happen overnight. A two-year unwind is common and allows you to spread the tax impact across multiple years, which can be significant for high earners in California where state income taxes alone can reach 13.3%.
Automate the sales. Selling a fixed number of shares per quarter — or enrolling in a 10b5-1 plan if your company offers one — removes the emotional decision from the process. You’re not agonizing over whether today is the right day to sell. The plan handles it.
Build in guardrails. A price floor protects you from selling into a temporary dip. If the stock drops below your threshold, you pause and catch up later. This isn’t about timing the market — it’s about avoiding the worst-case scenario of forced selling at depressed prices.
Reinvest with purpose. The proceeds from your stock sales shouldn’t sit in cash. They should flow into a diversified portfolio that’s aligned with your broader financial goals — whether that’s buying a home, funding your kids’ education, building a runway to start your own venture, or simply achieving financial independence on your own terms.
The Tax Piece Matters More Than You Think
One of the biggest reasons people delay selling company stock is taxes. And honestly, we understand. Nobody likes writing a big check to the IRS. But as we’ve written about extensively on this blog, the tax implications of holding RSUs are often misunderstood.
Remember: RSUs are taxed as ordinary income the moment they vest. You’ve already been taxed on that income. When you sell after vesting, you’re only paying capital gains tax on the difference between your vesting price and your sale price. If the stock hasn’t moved much, the tax impact of selling is minimal.
For shares you’ve held for more than a year, you’ll benefit from long-term capital gains rates, which are significantly lower than ordinary income rates. And if you have positions that are underwater — trading below the price at which they vested — selling those shares can actually generate tax losses that offset other gains. This is a strategy we use frequently called tax-loss harvesting, and it’s one of the most underutilized tools in a tech employee’s financial toolkit.
The bottom line: don’t let the tax tail wag the investment dog. A thoughtful unwind strategy accounts for taxes as part of the plan, not as a reason to avoid the plan.
Your Stock Compensation Can Still Be Life-Changing
We want to be clear: this blog isn’t about being pessimistic on stock compensation. Far from it. RSUs, stock options, and ESPPs are among the greatest wealth-building tools available to tech employees. We’ve seen clients use their stock compensation to buy homes, take sabbaticals, fund their children’s education, and build the kind of financial freedom most people only dream about.
But the key word in that sentence is “use.” Stock compensation only transforms your life if you turn it into something. If you let it sit, concentrated in a single company, you’re not investing, you’re speculating. And speculation is a game that even the smartest people lose.
The post that inspired this blog is a reminder that the good times don’t last forever. Employees are told to stick it out, keep their heads down, and trust that someday it will all pay off. But that’s not guaranteed; and when it doesn’t pan out, the consequences can be devastating.
Your financial plan shouldn’t depend on someday. It should depend on a strategy you control, built on principles that work regardless of what the market does tomorrow.
If you’re sitting on a concentrated stock position and you’re not sure where to start, we’re here to help. It’s what we do every day for clients just like you.
Related Reading::
• How Are My RSUs Taxed And How Should I Best Prepare?
• I Have RSUs, But Didn’t Sell Any. Why Is My Tax Bill So Crazy?
• My Company Is Public, How Can I Maximize My Stock Compensation?
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Stephanie Bucko and Cristina Livadary are fee-only financial planners based in Los Angeles, California. Stephanie is the Chief Investment Officer and Cristina is the Chief Executive Officer at Mana Financial Life Design (FLD). Mana FLD provides comprehensive financial planning and investment management services to help clients grow and protect their wealth throughout life’s journey. Mana FLD specializes in advising ambitious professionals who seek financial knowledge and want to implement creative budgeting, savings, proactive planning and powerful investment strategies. As fee-only fiduciaries and independent financial advisors, Stephanie and Cristina never receive commission of any kind. Stephanie and Cristina are legally bound by their certifications to provide unbiased and trustworthy financial advice.