Company shares can be a valuable perk, but could holding too much leave you exposed? Fidelity International’s Marianna Hunt is back to investigate.

work for a large US-listed tech company in London. Part of my the form of company shares that vest over time. After a while, my vested shares are now worth around £100,000 and I’ll have more shares vesting over the next three years.

I also have around £80,000 in an ISA, which is invested in a global tracker fund. My employer is one of the companies held by that tracker fund, so I have some exposure there too.

The company has performed well, so I’ve always held on to the shares. But I’m hearing more and more talk about the potential for tech stocks to crash if the AI bubble bursts.

I’m beginning to worry that my salary, bonus and too much of my wealth now depend on one business that could be particularly vulnerable if there was a tech crash. Should I sell some of the shares and diversify?

A: I can understand your concern. More than half of your investment portfolio is exposed to just one business – which is also your employer.

Your total exposure will actually be somewhat higher than £100,000 because your employer also makes up part of the global stock market tracker fund held in your ISA.

If you have a workplace pension, it’s worth checking what that is invested in too. Depending on the funds you hold, you could have further indirect exposure to your employer there.

Some investors are concerned that expectations around AI have pushed the valuations of certain technology companies too high. If those expectations aren’t met, share prices could suffer.

But you don’t need to have a view on whether AI is in a bubble to recognise the risks of holding too much money in one company. A profit warning, another industry problem, or simply disappointing results at your company could hit the value of your shares. In a more serious downturn, it could potentially affect your employment and income too.

One of the key principles of investing is to spread your risk widely across countries, companies and sectors. By doing so, you reduce the impact that problems affecting any single company, sector or market could have on your overall wealth.

On this basis, it may well be sensible to sell some of your shares and diversify your portfolio. Your company may continue to perform well, and you could miss out on further gains, but that’s the price investors often pay for the peace of mind that diversification can bring.

Possible implications

However, before making any changes, it’s worth asking a few questions. Firstly, what would the tax implications be of selling your vested company shares?

This will depend on how you hold the stock. One common arrangement for UK employees of US-listed companies is to receive restricted stock units (RSUs) as part of their remuneration.

There is typically no immediate tax to pay when RSUs are granted. When RSUs vest, the market value of the shares is normally treated as employment income and is subject to income tax and National Insurance contributions. Employers typically withhold a portion of the shares to cover these tax obligations, with the remaining shares deposited into an employer-linked brokerage or stock plan account.

If you later sell the shares, capital gains tax (CGT) will generally be based on any increase in their value since you acquired them at vesting. For shares priced in dollars, exchange rate movements can also affect the gain when it is calculated in pounds.

In the current tax year, UK individuals can make capital gains of up to £3,000 without incurring tax. If selling all the shares at once would result in a large taxable gain, you could consider spreading sales across different tax years to make use of more than one year’s £3,000 annual exemption.

However, this needs to be weighed against the risk of continuing to hold a concentrated portfolio for longer. Other arrangements have different tax implications, so it’s important to check how your employer’s scheme works.

If you have unused ISA allowance, you could consider reinvesting some of the sale proceeds within an ISA, where future gains would be sheltered from CGT.

What do you want to achieve?

The second question to ask is what do you want your investment portfolio to achieve for you? This should help to decide how you then invest the proceeds of any shares sold.

When do you think you’ll want to access this investment money? Is it for retirement? If so, how far away is it? Or is it for a house purchase in three years’ time?

Your time horizon will help to guide how much risk you might want to take with this money. For money you expect to need within the next few years, you may not want to expose it to the risk of significant stock market falls, so cash could be more appropriate.

For goals further into the future, you may be more able to tolerate short-term investment losses in the hope of potentially higher long-term returns. In other words, it may be worth talking more risk.

Taking more risk doesn’t mean failing to diversify, however. One simple option could be to invest some of the proceeds into a broadly diversified fund such as the global tracker you already hold. Your employer may still feature within that fund, but it should make up only a small proportion of a portfolio spread across many different companies and markets.

Depending on your goals and attitude to risk, you could also consider spreading your investments across different asset classes, such as bonds, property, infrastructure or commodities. If you want to specifically move your portfolio away from US tech, you could consider funds investing in other regions, like the UK or Europe, which are less directly exposed to AI.

Ultimately, you don’t need to predict whether your employer’s shares will rise or fall. The aim is to make sure your financial future isn’t riding too heavily on the fortunes of a single company.

Please remember this is not financial advice. If you’re unsure about what’s right for you, you should speak to a qualified financial adviser.

Do you have a personal finance question for our expert? Email asktheexpert@cityam.com