Forty-Two Percent of a Portfolio in the Employer's Own Shares, and a Client Who Sells at the Bottom
Choi Min-ji is 49, a senior engineer at a listed semiconductor-equipment maker in Gyeonggi, and plans to retire at 55. Her household financial assets total 1.15 billion KRW: 480 million in her employer's shares (including vested restricted stock units and an unexercised option grant), 210 million in a DC retirement account invested in a target-date fund, 180 million in a global index fund, 150 million in a domestic bond fund, and 130 million in deposits. Her salary, future option vesting, and her defined-benefit severance are all tied to the same company. On the firm's risk-tolerance questionnaire she scored 'balanced', but in 2022 she sold her entire equity fund position within a week of a 20% drawdown and stayed in cash for eleven months. Her only stated goal is to fund 3.5 million KRW a month in retirement from age 55, and she has asked whether she should sell the company shares now or wait for the price to recover to its 2021 high.
1. Quantify the concentration, explain why it is worse than the percentage suggests, and assess whether the 'balanced' questionnaire result can be relied on.
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Concentration: 480 million of 1.15 billion is 41.7% in a single issuer. Standard portfolio risk budgeting would treat anything above roughly 10% in one stock as a concentrated position.
Why the number understates the risk. The exposure is correlated, not diversified. Her salary, her unvested restricted stock, her unexercised options, and her DB severance all depend on the same firm. If the firm fails, she loses her job, her severance claim and 42% of her liquid net worth in the same quarter. The options layer leverage on top: a 30% fall in the share price can wipe out most of the option's value. Economically she behaves like an owner-manager, not a diversified saver.
On the questionnaire. The stated 'balanced' score conflicts with observed behaviour - a full liquidation after a 20% drawdown and eleven months in cash is a loss-aversion and regret pattern, not balanced. In planning, revealed behaviour outranks a self-reported label, because the label is tested precisely when markets fall. Treat her true risk capacity as lower than 42% single-stock exposure implies, and note that her plan requires the portfolio to survive to age 55 without a forced sale. The concentration is therefore not just a risk-tolerance issue but a goal-funding issue.
2. Design a staged diversification plan that addresses the tax mechanics and her belief that she should wait for the 2021 high.
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Answer the anchoring first. The 2021 high is a sunk reference point; the market does not know what she paid or what the stock once traded at. The test is forward-looking: if she were handed 480 million in cash today, would she buy this one stock with it? If not, holding is an active buy decision made by inertia.
Structure the exit. Target no more than 10% of financial assets (about 115 million) in employer stock, so roughly 365 million must be sold. Because she is a senior engineer, check blackout windows and inside-information restrictions before any trade date, and coordinate sales with option exercise - an exercise is employment income taxed at marginal rates, and she can owe tax without receiving cash, so a same-period share sale funds the liability.
Tax mechanics. Individual sales of listed shares are generally exempt from capital gains tax unless she crosses the major-shareholder threshold, which has been amended repeatedly; confirm the threshold in force on each trade date rather than quoting a remembered figure. If exercise would push her over it, spreading sales across tax years may keep her below it.
Behavioural guardrails. Sell in pre-committed quarterly tranches (for example 25% now, then equal slices over six quarters) under a written investment policy statement, with the rule recorded before the first trade. A staged rule survives a drawdown; discretion does not, as 2022 showed.
3. Test whether her assets can support 3.5 million KRW a month from age 55, and state what the portfolio must do to get there.
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The requirement is 42 million KRW a year from age 55 - a six-year bridge before the national pension and a 30-plus-year horizon after it. On 1.15 billion of financial assets, the initial withdrawal rate is 42 / 1,150 = 3.65%. That is inside a sustainable range only if the portfolio actually earns a real return.
Her current allocation does not support that. Roughly 42% sits in one stock whose fate is tied to her job, and her demonstrated behaviour is to move to cash after losses. A portfolio that is either concentrated or held in cash during recoveries will not deliver the real return a 3.65% withdrawal needs over three decades.
What has to change: (a) reduce the single-stock position to about 10% so the portfolio's return is not hostage to one employer; (b) hold a genuine growth sleeve - the global index fund is the right engine, sized to her true, behaviour-tested tolerance, not the questionnaire score; (c) carve out a cash and short-bond bucket covering 24–36 months of withdrawals so she is never forced to sell equities in a drawdown, which is the specific situation that triggered her 2022 exit; (d) stress-test at a 30% equity decline in year two and confirm the plan survives without a spending cut. If it does not survive, the answer is a later retirement date or a lower starting withdrawal - not more stock-specific risk.