Building a portfolio around concentrated stock means treating your employer equity as the starting point of your asset allocation, not a separate account you plan around later. If unvested Restricted Stock Units (RSUs) and vested shares already represent 60% of your net worth, your outside investments should be constructed to offset that exposure, not repeat it. Public company executives often never make that adjustment, because the tools used to build their outside portfolios were never designed to see the concentration in the first place.
What Does Building a Portfolio Around Concentrated Stock Actually Mean?
Building a portfolio around concentrated stock means every allocation decision in your brokerage account, 401(k), and IRA is made in response to the employer equity you already hold. A concentrated stock position is commonly defined as a single holding exceeding 10% of investable assets. Many public company executives hold positions several times that threshold once vested shares, unvested RSUs, Employee Stock Purchase Plan (ESPP) shares, and unexercised Incentive Stock Options (ISOs) are counted together.
The math behind the concern is unforgiving. A single stock that declines 50% requires a 100% gain just to recover its prior value. When that same company also pays your salary, funds your bonus, and controls your future equity grants, the outside portfolio is often the only part of your balance sheet that can behave independently.
A balanced portfolio should factor all the relevant sources of exposure, including:
- Vested shares held in brokerage accounts
- Unvested RSUs, valued at current share price
- ESPP shares and any unexercised ISOs or Non-Qualified Stock Options (NQSOs)
- Employer stock inside a 401(k)
- Future grant expectations tied to continued employment
Once those are factored, the allocation question changes. The outside portfolio is no longer being built from scratch. It is being built as a counterweight.
Should Executives Exclude Their Company’s Sector From Outside Investments?
Many executives with concentrated employer stock reduce or exclude their company’s sector in outside accounts, because a broad index fund can quietly compound the exposure they already have. Information technology alone has recently represented roughly 30% of the S&P 500 by weight. A software executive who holds employer shares and fills a 401(k) with an S&P 500 index fund is layering sector risk on top of single-stock risk.
Approaches executives may evaluate with an advisor include strategies that underweight the employer’s sector, direct indexing that excludes the employer’s stock and close competitors, and allocations toward asset classes with low correlation to the employer’s industry. The right mix depends on concentration level, time horizon, and how quickly diversification is occurring through planned sales or a structured diversification framework. Individual situations vary, and sector exclusion involves tradeoffs, including the possibility of trailing a full-market index when the excluded sector outperforms.
Why Do Risk Tolerance Questionnaires Miss Concentrated Stock?
Standard risk tolerance questionnaires miss concentrated stock because they measure attitude toward risk, not existing exposure to it. An executive who answers “aggressive” on a questionnaire may be handed an equity-heavy model portfolio, even though a concentrated position already places their total balance sheet well beyond what most aggressive models contemplate.
The more useful question is not “how much risk are you comfortable taking?” but “how much risk are you already taking?” An executive whose employer equity represents 60% of net worth may need an outside portfolio that scores as conservative on paper, precisely because the concentrated position is already supplying the growth engine and the volatility. Capacity for additional risk, measured against spending needs, career stability, and vesting schedules, matters more than appetite for it. Proceeds from planned share sales can then be reinvested into that counterweight structure over time, coordinated with a CPA or tax professional since sales of appreciated shares carry capital gains consequences, including the 3.8% Net Investment Income Tax (NIIT) above $200,000 of modified adjusted gross income for single filers or $250,000 for married couples filing jointly.
Curious how your outside investments should be structured given the employer stock you already hold? Contact Spectrum Asset Management to learn more about our advisory services.
By Garrett Peterson, Wealth Advisor | Spectrum Asset Management | Reviewed August 4, 2026
Disclaimer: This material is for informational and educational purposes only and should not be construed as investment, legal, or tax advice. All investing involves risk, including the potential loss of principal. Consult your financial, legal, and tax professionals regarding your personal circumstances. Nothing herein constitutes an offer to enter into an advisory relationship. Spectrum Asset Management, Inc. (SAM) is an SEC-registered investment adviser headquartered in Newport Beach, California. SAM is not affiliated with any other firm using a similar name.
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The outside portfolio generally serves as a stabilizer rather than a second growth engine, since unvested RSUs already provide concentrated equity exposure. Many executives in this position tilt outside accounts toward diversified holdings with low correlation to their employer’s sector, such as fixed income, international equities, or broad funds that exclude the employer’s industry. The right mix depends on vesting schedules, liquidity needs, and how quickly concentration is being reduced.
A cap-weighted index fund can add meaningful overlap, since information technology has recently made up roughly 30% of the S&P 500. Executives at technology companies sometimes use completion funds or direct indexing to hold the broad market while excluding their employer and its sector. Whether that tradeoff makes sense depends on total concentration and the pace of planned diversification.
For planning purposes, many advisors include unvested RSUs at current market value when measuring total exposure, because their value moves with the same share price as vested holdings. Unvested awards differ in one key way: they are typically forfeited if employment ends before vesting, so they carry employment risk in addition to market risk. Counting them changes allocation decisions even though they cannot be sold today.
A single position above 10% of investable assets is commonly treated as concentrated, though the threshold that matters is personal, not universal. For executives, the calculation should include vested shares, unvested RSUs, ESPP holdings, unexercised options, and employer stock inside retirement accounts. Positions of 30% to 60% of net worth are common after a decade of grants at an appreciating company.
