How Much Company Stock Should You Have?

The key to a successful investment portfolio: Diversification 

Recently, tech stocks have been dominating the news and I’ve been asked more frequently, “How much company stock should I have?” or “Do I have too much company stock?” This blog post will answer these questions and clear up misconceptions about company stock including how much of it you should hold.

Don’t look at stock as investments

It’s misleading to view your company stock as an investment. Investments shouldn’t have the possibility of dropping to zero value and should always be expected to outgrow inflation. This means that any stock in a single company, whether you work for it, is not truly an investment because it doesn’t meet those basic qualifications. Matter of fact, stocks are more similar to gambles than investments.

How much company stock you should have

A safe starting point is to have no more than 10% of your investable wealth in stock. This 10% will be your gambling portfolio, which includes stocks you buy and sell. As you sell stock, the money should filter into your long-term investment strategy, a safer alternative to relying on stock to power your investment portfolio. For how volatile stock can be, it makes sense to use it as a complement to your main investment strategy, and not to rely on it too much.

10% might seem low, but it balances safety with value

There’s no way of knowing what your company stock will do, and you’re already dependent on your company for your salary, bonuses, and benefits. That’s a lot of dependence on your employer, a single entity.

You might know a lot or like a lot about your company, but you have too much reliance on them. Confidence in your company is great, but can inspire you to make dangerous decisions. You lose your objectivity, and being too close to the action limits your ability to view the entire competitive landscape and how it’s changing. In other words, you can’t see the forest when you’re among the trees.

Keep your company stock in check, including the unvested portion, and make sure you’re transitioning those funds into your long-term portfolio as you sell.