Concentration Risk
Outsized exposure to a single position — often employer stock — that can swing your whole net worth.
When one holding dominates your portfolio, your financial outcome rides on a single company's fortunes, and the risk is easy to understate when the stock has only gone up. The useful framing isn't a percentage — it's an outcome: “if this drops 50%, your net worth drops X%.” Equity comp quietly manufactures concentration, which is why it deserves its own line of sight.
When one position drives everything
Concentration risk is the exposure that comes from a single holding dominating your portfolio — most often employer stock accumulated through RSUs, options, and an ESPP. The danger is that your financial outcome rides on one company's fortunes, and it's easy to understate while the stock has only gone up. Diversification's whole purpose is to avoid betting the house on a single name.
Frame it as an outcome, not a percentage
“40% of my net worth is in one stock” is abstract; “if this stock fell by half, my net worth would drop 20%” is a decision. The useful framing translates the position into the dollar and percentage hit to your whole picture under a real drawdown — which is also where the tension lives, because trimming a concentrated, low-basis position triggers capital-gains tax. The job is balancing the risk of holding against the cost of selling.
How Formation handles it
Formation expresses concentration as an outcome — what a 30% or 50% drop in the position would do to your net worth — and pairs it with the tax cost of trimming, so the trade-off is explicit. Tools like staged selling and charitable gifting of appreciated shares stay decisions for you and your advisor; Formation makes the exposure impossible to ignore.
A worked example
Years of RSU vesting leave you with $1.2 million of employer stock inside a $3 million net worth. That's 40% in one name — and a 50% drop in the stock would erase $600,000, a 20% hit to everything you own. Seeing it as “$600,000 at risk” rather than “40%” is what turns it into a plan.
Frequently asked
How much of my net worth in one stock is too much?
There's no universal number, but many advisors get cautious once a single position exceeds roughly 10–20% of investable assets. The better test is the outcome: how large a dollar and percentage hit to your net worth you could absorb if the stock fell sharply.
How do I reduce concentration without a big tax bill?
Common approaches include selling in stages across tax years, harvesting offsetting losses elsewhere, gifting appreciated shares to a donor-advised fund, and directing new savings away from the position. The right mix depends on your basis and tax rate — a conversation for your CPA and advisor.
In Formation
Concentration as an outcome
See this in your own numbers.
Formation organizes your whole household by entity and cites every figure to its source — the context that makes terms like this actionable.
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