Your job is already a holding in your portfolio

Everything here earned its place by changing an outcome. Nothing about employment and portfolio risk is included to round the number up.

Earnings are an undiversified asset

For most people, the present value of future earnings is far larger than their investment portfolio for much of their working life. That asset is entirely concentrated in one employer, one industry and one economy.

It is not usually thought of as part of the portfolio, which is why the concentration goes unnoticed. Treating it as a holding changes how the rest of the allocation looks.

Employer shares double the exposure

Holding shares in the company that pays you means a single bad outcome can hit income and savings simultaneously. The same event can also affect any pension linked to that employer, making it three exposures to one risk.

Employees frequently accumulate these positions through schemes without ever making an allocation decision. The convenience of acquisition is doing the work that analysis should be doing.

The correlation shows up when it matters

Industry downturns tend to affect employment and share prices in that sector at the same time. That means the concentrated position is most likely to fall precisely when you may need to draw on savings. This is the opposite of what a portfolio is supposed to do for you.

It is a timing problem rather than merely a diversification one.

Adjusting for it

One approach is to underweight your own sector in the rest of the portfolio, deliberately and in writing. Another is to sell employer shares as they vest rather than accumulating them, subject to any scheme rules.

The useful part is this: both are decisions with tax consequences that differ substantially by country and by scheme. Scheme conditions, holding periods and tax treatment should be checked locally or with a regulated adviser.

Job stability affects capacity

Someone with highly stable income and someone with volatile or commission-based income have different capacity for portfolio risk. Stable income functions somewhat like a defensive holding, and unstable income does the opposite.

For most people, this is a legitimate input into allocation and is usually left out of questionnaires entirely. It also argues for a larger cash buffer where income is uncertain.

If that does not fit your week, it is not a failure of willpower.

Keeping it proportionate

The point is not that employer shares are always wrong or that anyone should change jobs for portfolio reasons. It is that these exposures should be counted and decided rather than accumulated by default. Writing the total exposure to your employer and sector as a percentage is usually a clarifying exercise.

Where it helps most, what to do about it depends on circumstances that no general article can assess.

Everything above, in order of what to do first

1. Earnings are an undiversified asset. For most people, the present value of future earnings is far larger than their investment portfolio for much of their working life.
2. Employer shares double the exposure. Holding shares in the company that pays you means a single bad outcome can hit income and savings simultaneously.
3. The correlation shows up when it matters. Industry downturns tend to affect employment and share prices in that sector at the same time.
4. Adjusting for it. One approach is to underweight your own sector in the rest of the portfolio, deliberately and in writing.
5. Job stability affects capacity. Someone with highly stable income and someone with volatile or commission-based income have different capacity for portfolio risk.
6. Keeping it proportionate. The point is not that employer shares are always wrong or that anyone should change jobs for portfolio reasons.

The takeaway

Add your employer exposure across salary, shares and pension. It is rarely a number people expected.

The version you keep doing is the version that works.