If you work at a public company, chances are you’ve accumulated company stock through Restricted Stock Units (RSUs), Employee Stock Purchase Plans (ESPPs), or stock options. While holding onto these shares might feel like the right move—especially if you believe in your company’s future—it’s important to recognize the potential risks of overconcentration and the psychological barriers that may be preventing you from selling.
The Psychology of Holding Too Long
One of the biggest reasons employees hesitate to sell their company stock is loss aversion—the tendency to feel the pain of losses more than the joy of equivalent gains. When your company’s stock is rising, it’s easy to believe it will keep going up. When it’s falling, you might feel like selling would lock in losses. Either way, this mindset can lead to inaction and excessive risk.
Another factor at play is familiarity bias, where we place undue confidence in things we know well. Working for a company makes it feel more familiar, but that doesn’t mean the stock is immune or less likely to decline. History is filled with once-dominant companies whose stocks have lost significant value, leaving employees with much less wealth than they expected.
A related issue is anchoring to a high price—the tendency to fixate on a past peak stock price and resist selling below it. This can create unrealistic expectations and prevent you from making rational decisions about when to sell. Instead of waiting for the stock to return to a previous high, consider focusing on how selling fits into your overall financial plan.
Example: Steve’s Experience at His Fin-Tech Company
Take Steve, an early employee at Fin-Tech Company XYZ. Before the company went public, he carefully estimated a range of valuations, from conservative to aggressive within the initial year. On the first day of trading the stock surged, but Steve didn’t sell—he believed it would continue climbing and felt deeply optimistic about his work and the company’s future. However, after the first six months, the stock started to meaningfully decline, and Steve resisted selling because it was 50% off the highs. He kept holding, hoping for a rebound. After ~18 months the stock had declined more than 80%, and at that point, Fin-Tech Company XYZ was laying staff off, and Steve was not spared. Not only did his stock holdings lose significant value, but he also had to forfeit his unvested shares—a double blow to his financial security.
Steve’s experience highlights how psychological barriers—optimism, loss aversion, and anchoring—can lead to missed opportunities and increased financial risk. Having a structured plan to sell, rather than relying on emotions, can help avoid these pitfalls.
Example: Sarah’s Disciplined Selling Approach
Sarah, a software engineer at a fast-growing tech company, knew she wanted to buy a home in the next few years. Rather than trying to guess the perfect time to sell her company stock, she set up a plan to sell a portion every quarter—no matter what the stock price was. Over time, the stock had both highs and lows, but she stuck to her plan and blocked out the noise. By the time she was ready to purchase her home, she had gradually built up enough cash from her stock sales to make a solid down payment. Sarah’s disciplined approach allowed her to use her stock compensation to improve her quality of life without taking on unnecessary risk.
The Risks of Holding Too Much Employer Stock
Holding a significant portion of your net worth in a single stock—especially the one that also determines your paycheck—can create substantial risk. Below are just some of examples why:
- Stock Volatility: Your company’s stock price can decline due to market conditions, company performance, or industry shifts. If a significant portion of your wealth is tied to a single stock, your financial future is vulnerable.
- Job Risk & Stock Risk Are Connected: If your company faces challenges that hurt its stock price, it could also impact your job security. This compounds risk since both your income and investments are affected.
- Lack of Diversification: Even if your company continues to perform well, holding too much of a single stock goes against basic diversification principles. You don’t know when the market tides will turn, so a well-balanced portfolio reduces overall risk while improving long-term financial outcomes.
Your Company Stock Is Compensation—Treat It That Way
It’s easy to think of company stock differently than cash, but in reality, it’s a part of your total compensation. If your employer gave you a cash bonus, you wouldn’t hesitate to use it for important financial goals, whether that’s saving, investing, or improving your quality of life. Stock compensation should be viewed the same way.
Exiting company stock with a goal in mind can be a powerful motivator. Whether it be allocating funds for a downpayment, preparing for your family's education expenses, or other planned spending – trimming your employer shares allows you to put that money to make an informed plan rather than letting it sit in a single investment with concentrated risk.
Additionally, if you continue working at your company, you’re likely to receive more shares over time. This ongoing equity compensation means you don’t need to hold onto every share you receive and if you do, your employer stock will likely become a larger portion of your net worth.
A Simple Strategy: Sell a Portion Regularly
The good news? There’s no single “right” way to sell your employer stock. But one practical approach is to set a systematic selling plan—for example, selling a small percentage of your shares every quarter. This approach has several advantages:
- Removes Emotion from the Decision: By automating your sales on a set schedule, you avoid the stress of trying to time the market. Company executives and insiders often use 10b5-1 plans to diversify their holdings on a regular basis.
- Takes Advantage of Dollar-Cost Averaging: Selling in increments smooths out market fluctuations, reducing the risk of selling all your shares at an unfavorable price.
- Gradually Reduces Concentration Risk: Over time, this strategy helps you diversify your portfolio without feeling like you’re making a drastic move all at once. If the stock continues to rise, you’ll be happy you didn’t sell a huge amount, and if the stock declines, you’ll be pleased that you took action and have a plan in place.
Making the Mindset Shift
Letting go of employer stock doesn’t mean you don’t believe in your company—it means you believe in risk management and sticking to a plan. Selling some shares at regular intervals allows you to reduce risk while still benefiting from future stock appreciation. It sounds easy and wise to put this in place. However, when it comes to pulling the trigger, many hesitate. Working with an advisor who understands your goals and risk tolerance can be beneficial. The key takeaway? You don’t have to make an all-or-nothing decision. Selling a little at a time is a smart way to protect your financial future while staying invested in your company’s success.
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