Quick answer
Is it riskier to hold a single stock than an index fund?
Yes. A single large-cap stock is typically about twice as volatile as the S&P 500, and Hendrik Bessembinder's research found that about 4% of U.S. companies since 1926 created all of the stock market's net wealth above Treasury bills. An index owns those rare winners automatically; a concentrated holder is betting they already own one.
Key takeaways
- 01Most individual stocks underperformed Treasury bills over their lifetimes (Bessembinder, 2018).
- 02Great companies still fall hard: drawdowns of 50%–80% are common even for long-run winners.
- 03Concentration is usually defined as any single stock above 10%–20% of liquid net worth.
- 04You can cut the risk without a big tax bill: exchange funds, collars, gifting, or income-led diversification.
| Wealth creators since 1926 | About 4% of U.S. stocks |
|---|---|
| Single stock vs S&P 500 volatility | Roughly 2x |
| Concentration threshold | 10% to 20% of liquid net worth |
| Key study | Bessembinder, Journal of Financial Economics, 2018 |
The Short Answer
Is a concentrated stock position risky?
Yes, more than most holders estimate. A single large-cap stock is typically about twice as volatile as the S&P 500, and the long-run odds are skewed: across U.S. stocks since 1926, roughly 4% of companies created all of the market's net wealth above Treasury bills, and a majority of stocks underperformed T-bills over their lifetimes. An index owns the winners automatically. A concentrated holder is betting they already own one.
~4%
Share of U.S. stocks that created all net wealth, 1926–2016
~57%
Share of stocks that trailed one-month T-bills over their lifetime
~90
Companies responsible for over half of all wealth created
The Evidence
What does Bessembinder's research show?
Chart
U.S. common stocks by lifetime outcome vs. one-month T-bills, 1926–2016
This doesn't say your stock is a loser. It says the distribution of single-stock outcomes is wildly skewed, so a concentrated position has a much wider range of futures than an index.
Drawdowns
How far do great companies fall?
Chart
Approximate peak-to-trough declines (closing prices)
Chart
Gain needed to recover from a drawdown
Where Embark fits
Concentrated, and staying that way? Get paid for the risk.
Income reduces how much of your plan depends on the share price alone. Run your ticker.
- Turn paper wealth into cash flow without a taxable sale
- Use the income to diversify gradually with new money
- Targets 10%+ annual income with $0 tax at contribution
Run the numbers
Live prices · takes under a minute · no obligation
Why Indexing Works
Why does indexing beat most single stocks?
It owns the 4% automatically
You don't need to pick the next winner; the index holds it by construction.
It rebalances out of losers
Market-cap weighting shrinks fading companies without a decision from you.
It removes single-company failure
No one company can take more than a slice of the portfolio.
How much is too much? A common rule of thumb flags any single stock above 10–20% of net worth. See How Much Concentrated Stock Is Too Much?.
Your Options
How can you reduce concentration without a big tax bill?
| Approach | Reduces concentration? | Tax now? |
|---|---|---|
| Sell in stages | Yes | Yes, spread out |
| Exchange fund | Yes, over ~7 years | No |
| Collar or puts | Hedges downside, keeps shares | Usually no |
| Income strategy (Income+/Embark) | Adds cash flow you can diversify with | No |
Exchange funds are covered in the exchange fund guide; income approaches in Generating Income on Concentrated Stock. Income doesn't remove price risk, but it means the position pays you to diversify gradually with new cash instead of a taxable sale.
FAQ
Frequently asked questions
What is a concentrated stock position?
Usually any single stock that is more than about 10–20% of your net worth or investable assets. Many tech employees and founders hold far more than that in one company.
Is it better to hold a single stock or an index fund?
On average, an index fund. Most individual stocks underperform Treasury bills over their lifetime, and the market's returns come from a small minority of stocks that an index owns automatically.
How do I reduce stock concentration without paying taxes?
Options include exchange funds, gifting to charity, hedging with collars or puts, and directing new income (for example from an income strategy) into diversified assets instead of selling.
What percentage of stocks outperform Treasury bills?
In Bessembinder's study of U.S. common stocks from 1926 to 2016, fewer than half of stocks had lifetime buy-and-hold returns above one-month Treasury bills.
How much of my net worth should be in one stock?
Many planners suggest keeping any single stock below 10% to 20% of liquid net worth. Above that, plan a deliberate path down.
Is it smart to keep my employer's stock?
It doubles your exposure, because your salary, bonus and future equity grants already depend on the same company. That is a reason to diversify faster than you otherwise would.
What is the safest way to hold a concentrated position?
There is no risk-free option, but a collar sets a floor, an exchange fund diversifies, and an income overlay pays you while you diversify gradually.
Sources
Research
Sources
Cite this article
Embark Funds Research. “Single-Stock Concentration vs. Index Investing.” Embark Funds, updated October 15, 2026. https://www.embarkfunds.com/insights/single-stock-concentration-vs-index-investing
Not tax or legal advice: This article is educational. Exchange funds, partnerships and gifts carry rules that depend on your facts. Work with a CPA and an attorney before acting. Embark income figures are targets, not guarantees.
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Make the Position Pay You While You Decide
Income reduces your dependence on the stock's price alone. Run your ticker to see what Embark's SPV could target.