Working extensively with tech sector employees, we often see how they can default to building their portfolio around what they’re familiar with: the tech industry. However, this approach can quickly lead to an over concentration of tech-related assets, which could put their portfolio and wealth at undue risk. Common areas in which tech concentration can build up across wealth include:
- Tech-Related Stock and Equity Compensation: Holding restricted stock units or stock options, or purchasing company stock or comparable securities, can contribute to an over concentration in your portfolio.
- Human Capital: Like many tech employees, if your wealth is dependent on your future earning potential in the tech sector, it could be impacted if the financial health of the industry fluctuates.
- Real Estate: If you live in a tech hub like the Bay Area or Seattle, the value of your home could rise and fall with the financial health of the tech industry.
Diversifying and managing concentration risks becomes more important as you transition from the wealth accumulation stage of your career — growing wealth rapidly early on — to the wealth preservation stage — reducing risk to protect your assets, for example, as you approach retirement.
Recognizing the relationship between your investment decisions and your wealth is essential to helping you manage risks, safeguard your assets, and achieve your goals. We guide tech employees through managing concentration and similar situations unique to them.
If you want to take a more strategic approach to your wealth, please contact our team to learn more. You can also complete a Personal Financial Evaluation, so we can learn more about you and how we may support you.
Louis Odette (00:00:00-00:53:20)
If you work in the technology sector, it can be tempting to invest in what you know and buy shares of companies that you’re familiar with. That being said, you want to be wary of risk concentrations that can build up across your wealth. So not only your stock portfolio, but also your equity compensation, your human capital, and even your real estate if you live in a high priced West Coast market.
It’s also important to keep in mind the distinction between wealth accumulation and wealth preservation. Early on, you can grow your wealth rapidly if you pick the right stocks, but at a certain point, you achieve a level where you want to get a bit more conservative in your investment posture and reduce the risk that you’re taking in order to preserve your wealth longer term.
Written by: Louis Odette
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