Too Much of a Good Thing: The Risk of One Stock Running Your Life

Some financial problems only show up after something goes really, really well. You spent years at a great company, the stock kept climbing, and now one ticker symbol is worth more than your house. Congratulations. Also, we need to talk.

What counts as “concentrated”?

A concentrated position is simply when one stock makes up a big slice of your net worth. There is no official line in the sand, but we start paying close attention once any single company creeps past roughly 10% of your investable assets.

It almost never happens on purpose. It sneaks up on you through restricted stock units, an employee stock purchase plan, company stock in your 401(k), an inheritance from Grandpa who bought one company in 1978 and never sold, or one great pick that simply kept winning. FINRA points out that concentration often comes from an investment's own success quietly outgrowing everything else, and that employees are especially tempted to load retirement savings into their employer's stock.¹

Great companies still fall down

Here is the uncomfortable math. J.P. Morgan studied every stock that passed through the Russell 3000 from 1980 to 2014. Roughly 40% suffered a “catastrophic loss,” meaning a 70% drop from their peak that they never recovered from, and about two thirds of them trailed the index over their lifetime.²

Arizona State finance professor Hendrik Bessembinder went back even further, to 1926, and found that most individual U.S. stocks delivered lifetime returns worse than boring one month Treasury bills. In his original study, just 86 stocks accounted for half of all the wealth the entire U.S. stock market created over roughly 90 years.³ The market as a whole has been a wonderful wealth builder. The average individual stock? Not so much.

And the winners are not immune. On January 27, 2025, Nvidia, one of the great success stories of the decade, lost nearly $600 billion of market value in a single day, the biggest one day drop in U.S. stock market history.⁴ Imagine that being 60% of your portfolio and trying to enjoy your lunch.

The Enron lesson nobody should have to learn twice

At Enron, more than half of the 401(k) plan's assets were invested in company stock. Shares traded above $81 in January 2001 and fell below $1 by the end of the year. An estimated 15,000 employees lost about $1.3 billion from their retirement accounts.⁵ The cruelest part: the same company that held their savings also signed their paychecks, so the job and the nest egg disappeared together.

The math isn't fair, either

If a stock drops 50%, it doesn't need a 50% gain to get back to even. It needs a 100% gain. Losses dig a deeper hole than gains fill, which is why protecting the big number matters more than squeezing out the last few percent.

Why people hang on anyway

We hear the same reasons every time. “I'd owe too much in taxes.” “It always comes back.” “I know this company better than anybody.” “I'll sell when it gets back to its high.” All understandable, and all a bit like refusing to leave the golf course during a lightning storm because you paid for the full round. Letting the tax bill make the decision is usually the most expensive way to save on taxes.

Ways to unwind without handing the IRS a victory lap

• Sell gradually. Spreading sales over several tax years can keep gains in lower brackets. Long term capital gains are taxed at 0%, 15%, or 20% depending on your income, and some households can realize gains at 0%.⁶
• Harvest losses elsewhere. Losses in other parts of your portfolio can offset gains from trimming the big position.
• Give shares instead of cash. If you give to charity anyway, donating appreciated stock you've held more than a year generally lets you deduct its fair market value (usually up to 30% of your adjusted gross income), and you never pay tax on the gain.⁷
• Charitable remainder trust. You move shares into an irrevocable trust, the trust can sell and diversify, you receive an income stream of 5% to 50% a year, and at least 10% of the original value eventually goes to charity. You also get a partial deduction up front.⁸
• Exchange funds. You pool your stock with other investors' stocks and, after a seven year holding period, walk away with a slice of the whole diversified basket without triggering the gain. The catch: it's a seven year commitment, at least 20% of the fund must sit in other, generally illiquid assets, and there are investment minimums.⁹
• Company stock in a 401(k)? Before rolling anything over, read our article on net unrealized appreciation. It may change the order of operations entirely.

The bottom line

The stock that built your wealth isn't always the one that should protect it. This isn't about disliking the company or betting against it. It's about making sure one bad quarter, one lawsuit, or one surprise headline can't rewrite your retirement plan. If one name takes up a big chunk of your statement, let's map out a plan together. There's almost always a way to lower the risk without writing the IRS a thank you note.

This is general education, not personalized tax or investment advice. The right way to unwind a concentrated position depends on your cost basis, tax bracket, charitable goals, and timeline, so let's run your numbers before anything gets sold.

Sources

1. FINRA, “Concentrate on Concentration Risk”: defines concentration risk and identifies employer stock in retirement accounts and investment outperformance as common sources. finra.org
2. Michael Cembalest, J.P. Morgan, “The Agony and the Ecstasy: The Risks and Rewards of a Concentrated Stock Position” (2014), as reported by The Irish Times, “‘Extreme winners’ take it all while 40% of stocks suffer ‘catastrophic’ declines,” October 21, 2014: Russell 3000 stocks from 1980 to 2014, 40% catastrophic loss rate, and two thirds trailing the index. irishtimes.com (J.P. Morgan's 2024 update is available at jpmorgan.com)
3. Hendrik Bessembinder, “Do Stocks Outperform Treasury Bills?” Journal of Financial Economics, 2018, summarized by Arizona State University's W. P. Carey School of Business. wpcarey.asu.edu
4. NBC News, “Nvidia loses nearly $600 billion in market value after Chinese AI startup bursts onto scene,” January 27, 2025. nbcnews.com
5. U.S. Senate Committee on Governmental Affairs, hearing, “Retirement Insecurity: 401(k) Crisis at Enron,” 2002: share of plan assets in Enron stock, the stock's decline from $81.38, and an estimated $1.3 billion in 401(k) losses for about 15,000 employees. govinfo.gov
6. IRS, “Topic no. 409, Capital gains and losses.” irs.gov
7. IRS, Publication 526, “Charitable Contributions.” irs.gov
8. IRS, “Charitable remainder trusts.” irs.gov
9. Michael Kitces, “When To Use Exchange Funds To Diversify Concentrated Holdings.” kitces.com