The math
Your employer already owns enough of you.
Your salary depends on one company. Your health insurance depends on the same company. If a large share of your portfolio does too, you have not diversified a windfall. You have concentrated a bet you were already making with your career.
The identity that settles most of the argument
Restricted stock units are taxed as ordinary income when they vest, on the full market value that day. Your employer usually withholds some shares to cover it. What you are left with is stock you now own, bought with money that has already been taxed, at that day's price.
Which means the decision to keep it is not a decision to keep something. It is a decision to buy.
The vest-and-hold identity
A $50,000 grant vesting at a 32% marginal rate
- Taxed as ordinary income on
- $50,000
- Value of stock left after tax
- $34,000
- Equivalent cash purchase
- $34,000 of stock
Holding the vested shares is the same position, the same tax basis and the same risk as being handed $34,000 in cash and spending every dollar of it on employer stock. The only difference between those two situations is which one required you to take an action.
So the useful question is not "should I sell my RSUs." It is: if my employer handed me $34,000 in cash today, would I put all of it into this one stock?
Almost nobody answers yes. People keep the shares anyway, because selling feels like a decision and holding feels like the absence of one. It is not. Both are positions, and the default one is the more aggressive.
What the concentration actually costs
A single stock carries two kinds of risk. Market risk, which you are paid to take. And company-specific risk, which you are not, because it can be removed for free by owning more companies. You bear it and receive nothing for it.
Worked example
$200,000 over 10 years, 50,000 simulated paths. The market returns 7% with 16% volatility. The employer stock has the same expected market exposure plus 30% of company-specific volatility that carries no extra expected return
- Fully diversified, median
- $354,844
- Half in employer stock, median
- $259,678
- Cost at the median
- $95,166
- Cost at the 10th percentile
- $81,948
Both portfolios face the identical simulated market in every path. The difference is concentration, not luck, and it is not compensated with a higher average.
| In employer stock | Median | Bad case (10th) | Good case (90th) | Ends below where it started |
|---|---|---|---|---|
| 0% | $354,844 | $184,869 | $671,204 | 13.1% |
| 10% | $339,278 | $173,019 | $653,883 | 15.6% |
| 25% | $311,947 | $148,744 | $643,484 | 21.8% |
| 50% | $259,678 | $102,921 | $643,817 | 35.8% |
| 75% | $203,529 | $63,509 | $639,132 | 49.2% |
Read the last column. Fully diversified, 13.1% of paths end below where they started after 10 years. At half in employer stock that is 35.8%, and at three quarters it is 49.2%. You have roughly quadrupled the chance of a decade going nowhere.
Note also that the good case barely moves. The 90th percentile is almost identical across every row. You are not buying more upside. You are buying more spread, and paying for it out of the median.
This is the practical form of a finding we cited in the index fund essay: across roughly 26,000 US stocks since 1926, fewer than half beat one-month Treasury bills over their own lifetimes, and a small minority produced all the net wealth. Your employer might be in that minority. The base rate says probably not.
The part that makes this different from ordinary concentration
Everything above would apply to any single stock. Employer stock is worse, because the risks are correlated in the specific way that matters.
If the company struggles, the share price falls. In the same quarter, bonuses get cut, the next grant is smaller, hiring freezes, and layoffs get discussed. The scenario where you most need the money is the scenario in which it has just fallen, and it is also the scenario where your income is least secure and your industry is least likely to be hiring.
Your portfolio should be the thing that does not care what happens at work.
What to actually do
Set a ceiling in advance and write it down. Ten percent of investable assets is a common one. Twenty if you want to be generous to yourself about upside. The point of deciding in advance is that after a good year you will find reasons why this time is different.
Sell at vest by default. There is no tax penalty for it, because you already paid ordinary income tax on the full value. Selling immediately means close to zero capital gain and close to zero additional tax. The tax argument for holding does not exist at vest; it only appears later, once the position has appreciated, which is exactly when the concentration has grown too.
Use an automatic plan if you are ever restricted. Many employees have trading windows or need pre-clearance. A scheduled, pre-committed selling arrangement removes both the timing decision and the awkwardness of deciding to sell in a quarter when you happen to know something.
Employee stock purchase plans are a separate question. A genuine discount to market is real, immediate, near-certain return, and it is usually worth taking. That is an argument for participating. It is not an argument for holding what you buy.
Then put the proceeds somewhere boring. Where they go, and in which account, is its own decision worth real money.
The honest counterargument
People get rich from concentrated employer stock. That is true and it is not a fluke. Early employees at companies that worked have outcomes no diversified portfolio produces, and if that possibility is what you are buying, hold with your eyes open.
Two things to be clear about if you take that side. First, you are making an active bet that you have information or judgment about your employer that the market does not, which is a stronger claim than most people realize they are making. Second, the people you have heard about held concentrated positions in companies that succeeded. The ones who did the same thing at companies that did not are not writing articles about it.
There is also a real objection to selling at vest: option-like upside in an early-stage company is a genuinely different asset from shares in a mature listed employer. The arithmetic above is about the latter.
None of which changes the identity at the top. Holding is buying. If you would not spend $34,000 of cash on this one stock today, you are holding it because selling requires a decision, and that is not a reason.