Are Company Shares too risky to hold?

For many employees, receiving company shares or share options can feel like a huge financial opportunity. In some cases it can become the largest single asset a person owns outside their home or pension.

But one question I often ask clients is:

“If you were given the cash value of those shares today, would you invest all of it in your employer’s company?”

Holding too much of your wealth in a single company can expose you to concentration risk. Your salary, bonus and job security may already depend on that company, so having a large portion of your investments tied to the same business can increase financial risk.

History has shown that even very successful companies can struggle to keep pace with global markets over time.

When Great Companies Didn’t Keep Up

Nokia

In the early 2000s, Nokia dominated the global mobile phone market. At its peak it accounted for more than 40% of mobile phone sales worldwide. Employees who held significant shares in Nokia during that time might have assumed the growth would continue indefinitely.

But the arrival of smartphones and competitors like Apple and Samsung dramatically changed the landscape. Over time Nokia’s share price fell sharply, while global equity markets continued to grow. A diversified global equity portfolio would have delivered far stronger long-term returns.

Cisco

During the dot-com boom in 2000, Cisco briefly became the most valuable company in the world. At the time it looked unstoppable. Many employees held large amounts of stock through share plans and options. However, after the technology bubble burst, Cisco’s share price fell significantly and took more than two decades to approach its previous highs. Meanwhile, global equity markets continued to grow.

General Electric

For decades, General Electric (GE) was considered one of the strongest companies in the world. Many employees built substantial wealth through GE shares. But in the years following the financial crisis, the company faced major restructuring challenges and its share price declined dramatically.

Investors who held GE shares exclusively would have experienced a very different outcome compared to those invested in a diversified global portfolio.

Why Diversification Matters

These examples don’t mean that holding company shares is always a bad idea. In fact, employee share schemes can be an excellent way to build wealth. However, the key principle in investing is diversification. A global equity fund, for example, typically invests in thousands of companies across different countries and sectors. This reduces the risk that your financial future depends on the performance of a single business.

By comparison, holding a large concentration in one company; even a great company; can expose you to risks that are difficult to predict.

A Useful Rule of Thumb

We suggest that no more than 10–20% of your total wealth should be tied up in a single stock, including your employer’s shares. This doesn’t mean you should automatically sell everything. Instead, we help clients to gradually diversify over time; especially if the value of your shares grows significantly.

A well-structured financial plan can help you decide how company shares fit alongside your pension, savings, and other investments. If you need help in this area why not book in with us for a free review.