Many professionals are stellar in their fields but make the mistake of linking the bulk of their investments to the companies for which they work.
This might be a winning strategy when organizations are successful, but no company is immune to management missteps, government regulations, cost pressures, competitive shifts or disruptive technologies.
For example, the health care and pharmaceutical industries, including retail drugstores, had long been viewed as stable, yet their vulnerability has recently been exposed.
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- UnitedHealthcare, once a beacon of reliability, was in a freefall.
- CVS Health, a diversified giant, has seen its stock plummet by half with no recovery.
- Rite Aid? Bankrupt twice, first due to a CEO fraud scandal.
- Walgreens went private after its stock cratered by about 90%.
- Novo Nordisk, a European pharmaceutical powerhouse, dropped more than 30% in a week after an outlook cut and CEO transition.
That's just in health care — other industries might face similar risks.
As an investment adviser and fiduciary, I've seen a troubling trend among professionals — entrepreneurs, executives and medical professionals alike — who tie too much of their wealth to an employer's stock.
The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.
No matter your title or industry expertise, you can't predict everything. Even if you accurately gauge your company's trajectory, macroeconomic forces, industry disruptions or unreliable economic indicators — such as revised jobs data — can derail company valuations.
Many employees with company stock plans hold excessive amounts in their employer's stock, increasing their risk. This concentration is a financial disaster waiting to happen.
A single company downturn could cost you your job and a significant portion of your wealth, compounding the impact of an already stressful situation.
Understanding concentration risk
Concentration risk occurs when too much of your portfolio is tied to one asset — in this case, your employer's stock. This is particularly dangerous because your income and investments are linked to the same entity.
If your company falters, you could face a double blow: job loss and a plummeting portfolio. The health care sector's recent turmoil illustrates this vividly.
Management errors, such as the CEO-led fraud scandal that triggered Rite Aid's first bankruptcy, or external pressures, such as those impacting UnitedHealthcare's once-high valuations, can erode stock value unpredictably.
Even global leaders such as Novo Nordisk, which dropped more than 30% in a week in July 2025, aren't immune.
Entrepreneurs with startup equity, executives with restricted stock units (RSUs), and health care professionals with employee stock purchase plans (ESPPs) are especially vulnerable. Loyalty to your company or confidence in its future can cloud judgment, leading to over-investment.
As Walgreens' privatization and Rite Aid's bankruptcies demonstrate, even well-established firms can falter.
Six steps to protect your wealth
To safeguard your financial future, diversification is key. Here are six practical steps to mitigate concentration risk and build a resilient portfolio:
Limit company stock exposure. Keep your employer's stock to 5% to 10% of your portfolio. Beyond this, you're gambling on a single company's fortunes. Diversify into broad market index funds, exchange-traded funds (ETFs) or other sectors to spread risk.
Sell strategically. Cash out ESPPs and RSUs as soon as they vest, assuming no immediate penalties. Reinvest the proceeds into diversified assets to reduce reliance on your company's performance.
Be tax-savvy. Selling stock can trigger capital gains taxes, so consult a tax adviser to optimize timing and minimize liabilities. However, don't let tax concerns lock you into a risky position — preserving wealth trumps tax savings.
Prepare for volatility. Company stock is not a substitute for a retirement plan. A single bad quarter, policy shift or market correction can tank its value.
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Stay objective. Emotional attachment to your employer can skew financial decisions. Treat company stock as one part of your portfolio, not a badge of loyalty.
Rebalance regularly. Review your portfolio at least annually to ensure it aligns with your financial goals and risk tolerance. Market shifts or personal circumstances might require adjustments to maintain diversification.
A cautionary tale and a path forward
I've witnessed too many professionals learn this lesson the hard way.
A physician client held 40% of their portfolio in a single health care stock, confident in the company's dominance. When unexpected regulatory changes hit, their portfolio lost nearly a third of its value, derailing their retirement plans.
Diversification could have prevented this.
This serves as a wake-up call for professionals across all industries, especially as regulatory and market changes accelerate.
Your expertise drives your career, but your financial security demands a broader strategy.
By capping company stock, selling strategically and rebalancing regularly, you can protect your wealth from the unpredictable forces that nobody can fully anticipate.
Related Content
- Why Company Stock May Be Riskier Than Employees Realize
- Employee Stock Options: Understanding the Benefits and Risks
- How Does an Employee Stock Ownership Plan, or ESOP, Work?
- Taxes in Retirement: What ESOP Participants Need to Know
- Q2 2025 Post-Mortem: Rebound, Risks and Generational Shifts
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