Personal Finance

I'm 27 working for Apple with 75% net worth in Apple stock. The rest of my cash is in my 401k and index funds, is that okay?

Kristin Hitchcock

Published: November 30, 2024 11:12 am

24/7 Wall St. Key Takeaways:

• Managing employer stock can be challenging, especially when the stock is doing well and fueled by your faith. 
• However, diversification is required as a safety net.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

In a recent, thought-provoking Reddit post I came across, a 27-year-old Apple (NASDAQ: AAPL) engineer shares their financial situation and investment strategy. With 70-75% of their $550,000 net worth tied up in Apple stock through ESPP (Employee Stock Purchase Plan) and RSU (Restricted Stock Unit) programs, the engineer is grappling with a classic investment dilemma.

While they are optimistic about Apple’s future, the risk of over-concentration is real. Should they hold onto Apple stock or diversify?

That’s exactly what I’ll break down below:

The Benefits of Apple

While I generally don’t recommend over-investing in any stock, there are some benefits of investing heavily in Apple:

• Company performance: Apple has a strong track record, with its stock doubling from $120 to $260 since the engineer joined. Historical performance is not predictive, though. Many companies do very well until they don’t.
• Alignment of belief and investment: Working at Apple provides an insider perspective and emotional attachment to the stock. Plus, as an employee, the engineer has an indirect role in how the Apple stock does.
• Potential upside: If Apple continues to innovate and lead the tech industry, holding onto stock could result in substantial long-term growth.

The Risks of Concentration

All that said, the risks of concentrating on Apple stock are very large:

• Overexposure: With 70-75% of their portfolio in Apple, a downturn in the company’s performance could have outsized financial consequences. Putting all your eggs in one basket is rarely recommended!
• Employment Risk: Holding your company’s stock has a double risk. Your income and investments depend on the same source. As soon as Apple faces challenges, it could impact job security. 
• Market Dynamics: As the poster acknowledges, past performance doesn’t guarantee future returns. Betting heavily on a single company, even one as robust as Apple, is inherently risky.

Why I Recommend Diversification (And How to Do It)

I recommend diversifying away from Apple stock. Putting so much of your financial wellness on one company just isn’t a good idea! Here’s how this engineer could start diversifying:

1. Sell a portion of Apple stock: Gradually reallocating some Apple shares into a diversified mix of index funds or other assets could protect against downturns.
2. Leverage tax-advantaged accounts: The poster should continue to max out their 401(k) and invest in broad-market index funds, which will help him develop a more balanced portfolio.
3. Home onto core benefits: He doesn’t have to sell all Apple stock. However, holding a smaller portion, like 25%, is highly recommended. 

Balancing Confidence and Caution

The poster’s faith in Apple’s future is potentially warranted and understandable, especially since he is an employee. However, I still highly recommend diversifying! He doesn’t have to abandon his belief in the company, but he should protect himself from unforeseen risks. In fact, we recommend re-diversifying every year to improve investment outcomes.

Working with a qualified financial advisor is highly recommended. An advisor can tailor advice to specific goals based on your specific information.