Many technology employees in the United States, especially in California, New York, and Seattle, receive a significant portion of their compensation through stock options, Restricted Stock Units (RSUs), or an Employee Stock Purchase Plan (ESPP).
On paper, it sounds like the perfect scenario. Your company grows, the stock price rises, and your net worth soars. Employees at companies like NVIDIA, Meta, and Tesla have built multi-million-dollar fortunes this way.
But there’s one major problem. Many employees end up with an excessive concentration in a single company, often without even realizing it.
As a former tech employee for seven years, including four years at Fitbit between 2014 and 2018, I’ve seen firsthand how emotional our relationship with our employer’s stock can become. We know the company. We believe in the product. We work alongside brilliant people. We convince ourselves that we have “better information” than the market.
It’s human nature.
But it’s also a classic cognitive bias.
And sometimes, that bias can become extremely expensive.
The Real Risk: Depending on the Same Company Twice
When you work for a technology company, your salary already depends on that employer.
If, on top of that:
- Your investment portfolio depends on the same stock
- Your bonus depends on the stock price
- Your ESPP depends on the stock price
- Your RSUs depend on the stock price
then your entire financial life is tied to a single company.
The risk is straightforward. When a company experiences financial difficulties, employees may lose both their job and a substantial portion of their wealth.
This is often referred to as double exposure.
The tech industry is full of examples:
- Employees of promising startups that never recovered their peak valuations
- Highly anticipated IPOs followed by dramatic declines
- Employees who kept saying, “I’ll sell a little later,” only to watch the stock lose 50% or more
Very few companies become the next NVIDIA, Meta, or Google.
Yet almost every employee secretly believes theirs might.
This is a classic combination of:
- Familiarity bias
- Overconfidence
- Fear of missing future gains
- Emotional attachment to an employer
A Common Mistake: “I’ll Sell Later”
Many employees tell us: “I know I should diversify, just not yet.”
The problem is that “not yet” can easily turn into years.
Here’s a common scenario.
An employee receives RSUs over a five-year period. The stock performs exceptionally well. Their net worth grows from $200,000 to $2 million. As the stock keeps climbing, selling becomes psychologically harder and harder.
Why?
Because selling feels like:
- Admitting you no longer believe in your company
- Paying “too much” in taxes
- Risking missing the next big rally
The result?
Some people end up with 70%, 80%, or even 90% of their wealth invested in a single stock.
That’s rarely a deliberate strategy.
More often, it’s simply the absence of one.
Stock Options: Timing and Taxes Matter
Stock options can be an incredibly tax-efficient wealth-building tool, or an expensive mistake if handled incorrectly.
Three dates are especially important:
- Grant date
- Exercise date
- Sale date
In the United States, exercising certain stock options can trigger the Alternative Minimum Tax (AMT), even if you haven’t sold any shares.
This is a point many employees misunderstand.
Before an IPO, exercising early may sometimes be beneficial because it starts the long-term capital gains holding period and may reduce future tax exposure.
After an IPO, however, the strategy often changes.
In many situations, exercising and selling relatively soon afterward helps reduce concentration risk.
Taxes matter.
But investment risk matters too.
Many employees optimize for taxes while overlooking the much larger risk of excessive concentration.
RSUs: You’ve Already Paid Taxes on Them
This is probably one of the most counterintuitive concepts for many employees.
When your RSUs vest, they’re taxed as ordinary income.
In other words, you’ve already paid income tax and payroll taxes on them.
Keeping the shares is therefore a brand-new investment decision.
Ask yourself one simple question: “If my employer paid me this amount in cash today, would I immediately use 100% of it to buy my company’s stock?”
For many people, the honest answer is no.
And yet, that’s exactly what happens when they continue holding vested RSUs.
A Common Tax Mistake Employees Make with RSUs
Many employees automatically assume: “I should sell the shares I’ve held for more than a year so I qualify for long-term capital gains.”
That sounds logical.
But it’s not always the best decision.
A simple example.
You need to generate $100,000 of cash.
Would you rather:
- Pay 15% tax on $50,000 of long-term gains
or
- Pay 32% tax on only $10,000 of short-term gains?
In the first case:
- Tax ≈ $7,500
In the second:
- Tax ≈ $3,200
The tax rate alone doesn’t determine the better outcome.
You also have to consider the actual taxable gain.
This is one of the most common tax mistakes we see among technology professionals.
ESPPs: One of the Best Employee Benefits Available
An Employee Stock Purchase Plan (ESPP) often allows employees to buy company stock at a 10% to 15% discount.
That’s potentially an outstanding return almost immediately.
Unfortunately, many employees turn this relatively predictable benefit into an emotional investment bet.
A rational strategy often looks like this:
- Maximize contributions
- Capture the discount
- Sell promptly
- Diversify
Waiting years simply to optimize taxes can become dangerous if the stock falls significantly.
A 30% decline can easily erase several years of tax savings.
The Best Strategy Is Often… Boring
The reality is that the best investment strategies are rarely exciting.
They usually involve:
- Selling gradually
- Automating decisions
- Avoiding emotional reactions
- Reinvesting into a diversified portfolio
For example:
- Quarterly scheduled sales
- Gradual diversification
- Reinvesting into broadly diversified ETFs
- Reducing concentration risk over time
The objective isn’t to time the market.
The objective is to prevent a single event from undoing years of wealth creation.
Advanced Strategies for Highly Concentrated Portfolios
When concentrated positions become very large, more sophisticated planning strategies may be appropriate.
Exchange Funds
Exchange funds allow investors, under certain conditions, to exchange a concentrated stock position for an interest in a diversified pool of investors facing similar concentration issues.
Instead of selling immediately, you contribute your appreciated shares to a pooled investment vehicle and receive exposure to a diversified portfolio.
These strategies are complex and generally reserved for high-net-worth investors.
Section 351 ETF Structures
Certain investment structures built under Section 351 of the U.S. Internal Revenue Code may allow investors to contribute concentrated stock positions into a diversified portfolio without immediately recognizing capital gains.
The objective is similar.
Diversify without triggering an immediate taxable sale.
These strategies require careful legal, tax, and financial analysis.
Hedging
In some situations, derivative strategies can temporarily reduce the downside risk of a concentrated stock position.
This may allow investors to protect part of their wealth without immediately selling their shares.
Box Spread Financing
A box spread is an advanced options strategy that can allow investors to borrow against their investment portfolio at interest rates that are sometimes lower than traditional lending options.
For technology employees with highly concentrated stock positions, this can provide liquidity without forcing a sale during an unfavorable market environment.
Conclusion
Stock options, RSUs, and ESPPs can be extraordinary wealth-building tools.
But without a thoughtful strategy, they can also create excessive concentration and costly emotional decisions.
The greatest challenge usually isn’t technical.
It’s psychological.
Diversifying doesn’t mean you’ve lost faith in your company.
It simply means you’re protecting your future.
At Oui Financial, we regularly help technology professionals across the United States with:
- RSU planning
- Stock option strategies
- ESPP planning
- Diversification strategies
- U.S.-France tax planning
- Managing concentrated stock positions
Schedule an introductory consultation with our team to discuss your specific situation.
