The Silent Build
How RSUs quietly create dangerous concentration
Concentration from RSUs doesn't arrive as a decision. It accumulates. Every quarter another tranche vests into the same employer stock that already pays your salary — and most people never sell it. Four years in, you look up and 40%, 60%, sometimes 80% of your liquid net worth is sitting in one ticker.
The deeper problem is double exposure. Your paycheck and your portfolio are now the same bet. If NVDA, META, or GOOG stumbles, your equity comp gets repriced, refreshers shrink, hiring freezes, and the largest asset on your balance sheet drops — all at once. That's not diversification risk. That's correlation risk stacked on top of career risk. For the mechanics of how you got here, see what RSUs are and how RSUs are taxed.
"Nobody decides to put 70% of their net worth in one stock. The vesting schedule decides it for you."
How Much Is Too Much
The thresholds that separate conviction from recklessness
There's no universal line, but advisors converge on rough rules of thumb. Once a single stock crosses ~10% of your net worth, it's worth a plan. Past ~20%, you're carrying elevated, idiosyncratic risk that a diversified portfolio simply doesn't have. At 40%+ you're effectively running a single-stock fund with your retirement inside it.
The Embark Approach
Under ~10%
Generally fine. A high-conviction position at this size won't sink your financial plan if it halves.
~10–20%
Caution zone. Build a written diversification plan and a target weight. Most people drift here without noticing.
Over ~20%
Elevated risk. A single bad quarter can erase years of saving. This is where action stops being optional.
Over ~40%
Critical. Your net worth and your career now rise and fall together. One headline can change your retirement timeline.
These are guidelines, not gospel — a 25% position with a $300K basis and a 35% position with a $0 basis are very different problems. For a fuller framework, read how much concentrated stock is too much.
Drawdown Reality
Even the best companies have cut investors in half
The comforting story is “it's a great company, it'll come back.” Maybe. But single-stock drawdowns of 50–80% are not rare tail events — they happen to mega-caps you'd consider safe. The question isn't whether your stock can halve. It's whether your plan survives if it does.
$3M single position vs. the same stock diversified
Concentrated: $3M in one ticker, –60%
−$1,800,000
Your entire position falls with the stock. $3M becomes $1.2M. Recovering requires the stock to rise ~150% just to get back to even — and you've been fully exposed the whole time.
Diversified: stock at 15% of a $3M portfolio, −60%
−$270,000
The same brutal 60% move hits only your 15% sleeve. Portfolio drops ~9% to ~$2.73M. The rest of your holdings cushion the blow and keep compounding.
The math of concentration: A 60% drawdown on a concentrated $3M position is a $1.8M hole. The same 60% move in your stock, sized to 15% of a diversified portfolio, costs you ~9% overall — painful, not life-altering. Position size, not stock quality, determines survivability.
Real history, not hypotheticals: META fell roughly 76% peak-to-trough in 2022. Netflix, PayPal, and a long list of “obvious winners” have each shed 50–80% in a single cycle. Some recovered; some never did. The point isn't to predict your stock — it's that betting your financial security on no severe drawdown ever happening is not a plan.
The Dilemma
You want to diversify — but selling triggers a tax bomb
Here's why concentration persists even among people who know better: selling hurts twice. Your RSU cost basis is the FMV at vest, which on long-held shares can be a fraction of today's price. Sell, and the gap is a long-term capital gain — up to 23.8% federal (20% + 3.8% NIIT) plus state, which in California pushes the all-in rate north of 37%.
So a $3M position with a $700K basis carries roughly $2.3M of gain. Liquidating it to diversify can cost $500K–$850K in tax depending on your state — capital that's gone, permanently, and no longer compounding. That's the wall most people hit. The good news: selling isn't your only lever. There's a menu, and the options differ enormously on tax, upside, income, and lockup.
"The reason smart people stay concentrated isn't ignorance. It's that every exit they know about hands the IRS a six-figure check."
The Embark Strategy
Generate Income on Your Appreciated Stock — Without a Tax Event
Engineers at Google, Meta & Apple use Embark’s IRS §721 strategy to generate 10%+ targeted income on concentrated positions — keep your stock, participate in upside, with no taxable event.
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Side by Side
The six options on the dimensions that matter
No option wins on every axis — that's the whole point. Match the tool to your real constraint: tax sensitivity, need for income, tolerance for lockup, and how much conviction you still hold in the stock.
| Option | Triggers tax now? / Keeps upside? | Income? / Liquidity / Complexity |
|---|---|---|
| Sell & diversify | Yes, full gain / No (you're out) | No / Fully liquid / Low |
| Gradual / tax-aware sell | Partial each year / Shrinking | No / Liquid / Medium |
| Direct indexing + TLH | Reduced via offsets / Diversified | No / Liquid / Medium–High |
| Exchange fund | Deferred (§721) / Basket only | No / ~7-yr lockup / High |
| Collar / protective puts | No / Capped (collar) | No / Liquid / Medium–High |
| Embark §721 SPV | No (§721) / Yes, full upside | Yes, ~10%+ / No lockup / Medium |
For the broader landscape of moves on appreciated stock, see how to diversify appreciated stock and monetizing appreciated stock without a tax event.
The Embark Approach
Why §721 is the sophisticated answer for low-basis RSU stock
Embark exists for the specific corner of this problem the other tools handle poorly: a large, low-basis, high-conviction position where selling is too expensive, hedging doesn't reduce concentration, and a 7-year zero-income lockup is a non-starter. The §721 SPV addresses all three at once.
The Embark Approach
$0 tax at contribution
Contributing stock to the SPV is a nonrecognition event under §721(a). Your basis carries over under §722 — the gain is deferred, not paid.
~10%+ targeted income
SPV strategies target 10%+ annual income on the contributed position — reported on a K-1. On $3M, that targets ~$300K/year your concentrated stock paid you nothing for before.
Keep your upside
Unlike selling, exchange funds, or collars, you retain economic exposure to your stock. If it runs, you participate.
No margin calls, no lockup
Unlike securities-backed lending, there's no loan to call. Unlike exchange funds, there's no 7-year handcuff.
Honest framing: Embark isn't free or magic. The built-in gain is deferred under §704(c), not erased — if the SPV later sells the stock, that gain is allocated back to you. It's structured for accredited investors with $3M+ concentrated positions, and it's one tool among several here. Where it wins decisively is the exact RSU profile: big position, tiny basis, want income and upside without a tax event.
Who Should Act
Match the move to your situation
The 8-year tenured engineer
60%+ of net worth in one FAANG ticker, basis a fraction of today's price. Selling means a $600K+ tax bill. Best fit: §721 SPV or direct indexing glide path — diversify without realizing the full gain at once.
The post-IPO holder
Newly liquid, huge unrealized gain, still bullish but newly aware of concentration. Best fit: §721 for income + upside, or an exchange fund if income isn't needed and a lockup is acceptable.
Approaching a liquidity need
Buying a house or retiring soon — you need cash and certainty. Best fit: tax-aware gradual selling, possibly collared to protect the shares you'll sell. Liquidity beats deferral here.
The early accumulator
Position is still under ~15% of net worth. Best fit: a simple rule — sell each new vest as it lands and reinvest in an index. Cheapest possible diversification, before concentration compounds.
Traps & Rules
The behavioral mistakes that keep people concentrated
The “I'll sell when it's higher” trap: Every concentrated holder has a price in their head where they'll “finally diversify.” It never comes — when the stock rises, the new target rises with it; when it falls, you wait for the recovery. This is anchoring, and it's how 20% positions become 60% positions. Set rules based on portfolio weight, not stock price.
Do
- Set a target weight for the position (e.g. 15% of net worth) and a written rule to trim back to it
- Decide your diversification plan by portfolio percentage, not by where the stock is trading
- Default to selling new vests as they land — it's the cheapest diversification you'll ever get
- Run the real after-tax cost of selling before assuming it's your only option — use the calculator
- Match the tool to your constraint: tax-sensitive and low-basis → look hard at §721
Don't
- Don't anchor your diversification trigger to an all-time high that may never return
- Don't confuse a collar with diversification — it caps risk, not concentration
- Don't assume selling is the only exit — there are five other options on this page
- Don't let the tax tail wag the dog: a 37% tax beats a 76% drawdown on the whole position
- Don't wait for “the right time” — every year you stay concentrated is another year of single-stock risk
FAQ
Common questions on RSU concentration and diversification
How much of my net worth in one stock is too much?
As a rough rule, under ~10% is generally fine, ~10–20% warrants a written plan, and over ~20% is elevated, idiosyncratic risk. These are guidelines — your basis, income needs, and time horizon all shift the line. See the full framework.
Can I diversify without paying capital gains tax?
Partly. Selling realizes the gain. But exchange funds and §721 SPVs use nonrecognition to defer it, direct indexing harvests losses to offset it, and hedging avoids a sale entirely. Each has tradeoffs on income, lockup, and upside — see diversifying appreciated stock.
Isn't my company stock different — it's a great business?
It may be. But META dropped ~76% in 2022 and it's a great business too. Single-stock drawdowns of 50–80% hit mega-caps regularly. Quality reduces the odds of a permanent loss; it does not eliminate the volatility that can derail your plan at the wrong moment.
What's the difference between an exchange fund and Embark's §721 SPV?
Both defer tax under §721. An exchange fund gives you a diversified basket but locks you up ~7 years, pays no income, and you surrender your specific stock. Embark's SPV targets 10%+ income, has no lockup, and you keep your position's upside. Full comparison: exchange funds vs. Embark §721.
Should I just sell a little each year?
Gradual, tax-aware selling is a perfectly good answer for moderate positions — it spreads the tax and stays simple. The weakness is time: you remain over-concentrated for years while you unwind. For very large low-basis positions, a deferral structure can diversify your risk faster than the IRS lets you sell.
Where do I start?
Calculate the real after-tax cost of selling your position with the Embark calculator, then compare it against the deferral and income options above. The right move depends on your basis, state, income needs, and conviction — not on a one-size rule.
RSUs: The Complete Guide Series
6 of 6
Diversify Without Selling
Reduce Concentration Risk — Without a Tax Event
Your RSUs built a position you can't easily unwind without a six-figure tax bill. Embark's §721 SPV lets you diversify your risk and generate 10%+ targeted annual income on the contributed stock — $0 tax at contribution, full upside, no forced sales.