At a minimum, assets held outside of company stock should allow you to cover your fixed and ongoing financial obligations without selling a single employer share. That is a dollar figure, not a percentage of net worth, and it is set by what your life costs rather than by how large the concentrated position has grown. Holding and growing a concentrated position is how to build wealth through equity compensation, and building outside accounts allows a concentrated position to keep growing rather than serving as a financial support system for your fixed obligations.
What Does the Rest of My Portfolio Need to Cover?
Your portfolio outside of concentrated employer stock should be able to cover any ongoing financial obligations that continue regardless of employer share price performance. These obligations are often fixed and/or long-term, which separates them from discretionary spending that can flex in a slow year. Some of the fixed obligations commonly seen by public company executives include:
- Mortgage principal and interest, plus property tax
- Tuition already committed
- Federal and state income tax owed on vested Restricted Stock Units and scheduled deferred compensation distributions
- Health coverage between a departure date and Medicare eligibility at age 65
- Baseline household spending: food, utilities, transportation, insurance
Converting that annual figure into a capital figure is arithmetic. At a 4% planning convention, $200,000 of annual fixed obligations corresponds to roughly $5 million of diversified capital. The right withdrawal assumption depends on time horizon, tax location of assets, and other income, so individual situations vary.
The floor has two versions. Earned income covers fixed obligations directly during working years, so the near term floor is the capital required to carry those obligations through a job change, while the long term floor is the full capitalized figure that becomes operative as the last planned working year comes into view. An earlier post on how much of a portfolio should sit in one stock answers the same question as a percentage, and the dollar floor is the version that either funds the obligations or does not.
Does Owning Employer Stock Plus an S&P Fund Increase Concentration?
Owning employer stock alongside an S&P 500 index fund can add to the same concentration risk because the index itself is concentrated in a small number of mega cap names. The 10 largest companies in the S&P 500 approached 40% of the index by mid 2025, a level of concentration not seen since the mid 1960s, according to S&P Dow Jones Indices research, and the top 10 still carry roughly 37% of index weight as of August 2026.
The arithmetic is direct. If your employer is a top 10 constituent at a 6% index weight, every $2 million allocated to an S&P 500 index fund holds another $120,000 of the same stock. A portfolio that reads as diversified on the statement is quietly adding to the position it was meant to offset.
The effect reaches companies outside the top 10 as well, because correlation rather than index membership determines whether a second holding is a second bet. A software or semiconductor company may respond to similar market or demand cycles that move the index’s largest weights, the same layered exposure at work when a career and a net worth depend on one company.
Limitation of Single Stock Return Statistics
Single stock return statistics show that a small number of companies produce nearly all of the equity market’s wealth, and that the typical company does not. Research from Hendrik Bessembinder at the ASU W. P. Carey School of Business found that only 43% of US common stocks outperformed one month Treasury bills over their lifetimes from 1926 to 2015, and that 4.3% of stocks accounted for all of the net wealth creation in the US market.
The useful read is the shape of the distribution, not the prospects of any one company. Holding equity in a company that becomes one of the market’s strongest long-term performers can create substantial wealth, which is why concentration can work when it works.
What Does It Cost to Unwind a Concentrated Position?
Unwinding a concentrated position as a California resident costs roughly 37% of the gain at the top of the rate schedule. The stack is a 20% top federal long term capital gains rate, plus the 3.8% Net Investment Income Tax that applies above $200,000 of modified adjusted gross income for single filers and $250,000 for married filers, plus California ordinary income rates reaching 13.3%, because California applies no preferential rate to capital gains.
That cost is not uniform across the position. Shares delivered from Restricted Stock Units carry a basis equal to fair market value on the vesting date, already taxed as ordinary compensation income, so the taxable gain is only appreciation since vest. Recently vested lots often carry very little embedded gain, while older lots carry most of the tax cost.
Lot sequencing is therefore a live planning variable, and it interacts with the tax year the sale lands in and where the proceeds are reinvested.
How Long Does It Take to Sell Down a Concentrated Position?
For an executive of a public company, selling down a concentrated position may take several quarters because two independent constraints govern the pace. Rule 144 limits an affiliate’s sales in any three month period to the greater of 1% of the outstanding shares of the class or average weekly reported trading volume over the prior four weeks.
A 10b5-1 Trading Plan adds a cooling off period before the first trade under the December 2022 amendments. For directors and Section 16 officers, that period runs to the later of 90 days after adoption or two business days after the company files the Form 10-Q or Form 10-K covering the fiscal quarter in which the plan was adopted, capped at 120 days. For persons other than directors, officers, and the issuer, the cooling off period is 30 days.
The practical consequence is a calendar. A 10b5-1 Trading Plan adopted by an officer this quarter may not place a first order until the next quarterly report is filed, and Rule 144 then meters what clears in each three month window. Building the base runs across multiple filing cycles, which argues for starting before the floor is needed.
What Changes Once the Diversified Base Is Funded?
Once you have established a base that covers your fixed obligations, a concentrated position stops being structural and becomes discretionary. Shares above the floor can be held, hedged, gifted, or sold on a schedule, and those decisions are no longer directly responsible for funding a mortgage payment or tuition bill.
If you are interested in building a base outside of your concentrated employer equity, contact us to learn more about our advisory services and how we can help.
By Garrett Peterson, Wealth Advisor | Spectrum Asset Management | Reviewed September 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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