One of the fastest ways otherwise-thoughtful investors derail their long-term plans is by letting a single stock—or a tight cluster of related names—dominate their portfolio. Holding a big winner feels great—until you remember that your entire retirement now swings on the fortunes of a single company.
Whether the culprit is company stock that has steadily vested over the years, a “Magnificent-7” winner that morphed into a core holding, or simple inertia, concentration risk is real…and often invisible until it’s too late. Below we explain:
- what “over-concentration” means,
- why it quietly raises the stakes for your entire financial plan, and
- practical, tax-savvy ways Mendel Money Management helps clients unwind it.
Why 10 %–20 % is the danger zone
According to Charles Schwab, portfolios where any one holding breaches the 10 %–20 % band are officially in the danger zone for “over-concentration” . While most investors know this rule of thumb, far fewer appreciate just how quickly concentration risk can snowball—or how many tools exist to defuse it without blowing up a tax bill.
J.P. Morgan’s analysis of families with concentrated positions reaches a similar conclusion: portfolios above the 20 % line experience far steeper drawdowns and recover far more slowly after market shocks.
Why the math turns against you so quickly
Even if you own a diversified core, layering just one volatile stock on top changes the portfolio’s entire risk profile. As the share of a single, high-volatility stock increases, so does overall portfolio risk—often dramatically—especially if that stock is correlated with broader markets. That extra risk can turn a comfortable plan into a cliff-edge.
Real-world data echo the simulation. Russell Investments’ 2025 study of concentrated portfolios found dramatically wider peak-to-trough draw-downs, with names such as Tesla and Intel showing 60 %–70 % losses before recovering (or still struggling to recover) over multi-year stretches. J.P. Morgan Private Bank goes further, warning that “no more than 10 %–20 % of total assets should sit in a single stock” unless you can afford to lose it outright—a standard rooted in decades of client outcomes rather than theory
Four invisible pipelines that create concentration
Over-concentration rarely happens in one dramatic purchase. More often it seeps in through everyday channels:
- Equity compensation. RSUs, stock options, and ESPPs vest quietly year after year—until you wake up with half your wealth in a ticker symbol.
- Performance drift. A hot technology name can out-run the S&P 500 by 700 % in two years, turning a modest bet into a portfolio anchor.
- Familiarity bias. We naturally trust what we know—especially if it also signs our paycheck—so we underestimate both market and career risk.
- Tax inertia. A low basis makes selling feel painful, so we postpone and pray, even though a 60 % slide would hurt far more.
FINRA calls this “concentration risk: the risk of amplified losses that occur when too many eggs sit in the same basket” and reminds investors that intentional bets, asset-performance drift, and company-stock loyalty all feed the problem.
The hidden cost: opportunity, not just volatility
When one position hogs capital, you miss compounding in the rest of the market. Schwab’s January 2025 research shows that over 20-year horizons, the median single stock under-performs the broad market by roughly 8 percentage points per year, while carrying double the downside deviation. In other words, concentration isn’t just riskier; it’s usually less rewarding.
Fixing the issue without setting off a tax grenade
Unwinding a large position is equal parts math, tax law, and behavioral coaching. At Mendel Money Management we follow a three-step Over-Concentration Reduction Roadmap™:
- Diagnose the real exposure. We treat employer stock held inside 401(k)s, options yet to vest, and correlated sector funds as part of the same risk cluster. Only when the whole picture is on one page do most investors grasp the magnitude of the bet.
- Design a staged exit. Rather than dumping shares all at once, we map sales against your income-tax brackets and charitable-giving goals. Gifting low-basis shares to a donor-advised fund can knock out both the capital-gain liability and your philanthropic budget in one move.
- Apply advanced tools where size demands it. For multimillion-dollar legacy positions, exchange funds can swap your shares for a diversified basket without immediate tax realization, while equity collars can cap downside during a multi-year reduction plan.
Mind over market: winning the psychological game
More than half the battle is emotional. J.P. Morgan’s research shows investors are twice as likely to cling to a winner immediately after a big run-up, even though the odds of out-performance drop sharply after such streaks. That’s why we suggest shifting the conversation from spur-of-the-moment feelings to a predefined playbook—decisions become disciplined, deliberate, and firmly anchored to your long-term plan.
Bringing it home
If one stock—whether it’s your employer, a beloved brand, or yesterday’s high-flyer—already owns more than a fifth of your balance sheet, you don’t have a portfolio; you have a bet. Multiple studies from Schwab, FINRA, Russell Investments, and J.P. Morgan underscore how quickly that bet can double overall volatility and jeopardize long-term goals. The good news: today’s playbook for unwinding concentration—from tax-aware staged sales to sophisticated hedging and exchange-fund solutions—makes diversifying safer, smoother, and far more cost-effective than ever before.
Next step: book a complimentary PersonalPath Intro Call with Mendel Money Management. We’ll x-ray your holdings, quantify the drag and danger of the single-stock monster, and lay out a custom, tax-aware path back to true diversification—so your future isn’t hostage to one ticker symbol.
The views expressed represent the opinions of Mendel Money Management as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.
Diversification and asset allocation do not ensure a profit or guarantee against loss.Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.
