Concentrated Stock and Share Options: The Risk Senior Executives Rarely Manage

The wealth you can't easily see as a portfolio

If you're a senior executive, director or long-serving employee of a business that's done well, there's a good chance a meaningful part of your net worth sits in company shares, share options or RSUs that vest over time. It doesn't always feel like a portfolio decision because it wasn't chosen the way your pension or ISA was — it accumulated as a by-product of your career. That's exactly why it tends to get ignored. You review your pension. You rebalance your ISA. The share options sitting in a separate account, vesting on a schedule you half-remember, often don't get touched until a vesting date or leaver event forces the issue.

Why concentration risk hides in plain sight

A diversified portfolio spreads risk across companies, sectors and asset classes deliberately. A concentrated position in your own employer does the opposite — and it compounds in an unusual way. Your salary, bonus, pension contributions and now a chunk of your investable wealth are all tied to the same company's performance. If the business has a difficult period, you're not just at risk of a smaller bonus; your share price exposure falls at the same time. This is the kind of risk that's easy to rationalise away when the stock has done well for years, and much harder to unwind calmly once it's started to fall.

The tax traps when you finally sell

Unwinding a concentrated position isn't simply a case of selling. Depending on how the shares or options were granted, you may be looking at income tax on vesting or exercise, capital gains tax on subsequent growth, and in some cases employer reporting obligations that affect timing. Selling a large block in one tax year can push income or gains into higher rates than selling the same position gradually across two or three years would. None of this is a reason to delay indefinitely — holding a concentrated position for tax convenience is its own risk — but it is a reason to plan the sale rather than let a vesting date dictate it for you.

Building a diversification plan without raising red flags

Executives are often wary of being seen to sell down company stock, particularly if trading windows or insider rules apply, or if there's a cultural expectation that leadership holds skin in the game. A sensible plan works within those constraints rather than against them: using permitted trading windows consistently, setting a fixed proportion to sell at each vesting event rather than reacting to share price moves, and treating diversification as a standing policy rather than a one-off decision that needs justifying each time.

Where pensions and ISAs fit into the exit

Proceeds from selling concentrated stock don't need to sit in cash or be reinvested straight into the market. For higher earners, pension contributions from sale proceeds can be a useful way to extract value tax-efficiently, particularly if annual allowance headroom has built up from previous years. ISA allowances, used consistently year after year by both you and a spouse or partner, give a second home for proceeds outside your employer's fortunes. The point isn't to default into any one product — it's to make sure the money, once freed from a single stock, actually gets diversified rather than drifting back into cash.

Questions worth asking before your next vesting date

• What proportion of my total net worth, including my pension and property, is tied to this one company?

• If the share price halved tomorrow, what would that do to my retirement timeline?

• Am I selling according to a plan, or reacting to price moves and gut feel?

• Have I accounted for the tax treatment of vesting, exercise and sale separately?

• Where is the proceeds from each sale actually going once it lands in my account?

A concentrated stock position built over a successful career is a good problem to have — but it behaves differently from the rest of your portfolio and needs a different kind of attention. **If a significant part of your wealth sits in employer shares or options and you've never stress-tested what that concentration means for your retirement plans, our free guide, The Pre-Retirement Pension Review, is a useful starting point — or book a no-obligation call at www.dmfinancialplanning.co.uk.**

Important information

This article is for general information only and does not constitute personal financial advice. The value of investments can fall as well as rise and you may get back less than you invest. Tax treatment depends on individual circumstances and may change. A pension is a long-term investment; funds cannot normally be accessed until age 55 (57 from 2028). DM Financial Planning is a trading style of Aegis Financial Planning Limited, authorised and regulated by the Financial Conduct Authority (FCA No. 624298).