Working for a successful technology company has been financially rewarding for many people in Ireland in recent years. In general salaries are strong, perks are generous, including a decent employer-backed pension contribution scheme, and stock options are a cherry on top.

Of course there are compelling attractions to jobs that come with stock options. If you get in at the right time, stock options can provide a material amount of wealth. The reward can be tax-efficient. And you are the owner of shares in a business you understand because you’re working in it every day. You’re likely well-qualified to form a view on its future prospects – and to play a part in growing the share price.

But this neat package can carry a hidden danger: too much of your wealth concentrated in a single company. If your pay, your options and a meaningful slice of your pension all rely on the performance of a single company, you have single stock risk, and a bad patch can hit your finances from three directions at once.

Perhaps the most obvious example in recent years comes via the global financial crisis, where many bank staff took their bonuses in stock options rather than hard cash.

When the equity value of those banks was wiped out, many workers faced a serious hit to their savings at the same time as their jobs were under threat.

Here are five steps you can take to deal with your risk of having too much exposure to a single stock.

1. Measure your total exposure to single stock risk

First, get some data. Add up your salary, restricted stock units/ RSUs you expect to receive and vested shares. It may be worth including your pension value. For example, if your pension is invested in a global stock fund and you work for Apple, around 5% of your pension is likely held in shares in your employer.

Treat the total as one position. What proportion of your total wealth does it represent?

2. Consider correlated exposures

Now cast the net a little wider. Remember that many technology stocks rise and fall together. That pension fund we mentioned? Around 30% of it is in technology stocks [pdf]. How would your wealth be affected if the Nasdaq 100 fell by a third, as it did in 2022?

3. Plan for the exit

What does your exit for this exposure actually look like? This is unlikely to be a total exit. But it could include selling down your stock awards in a gradual way, in order to reach a target percentage of your overall wealth. It could include diversifying your pension. Or it could involve change of job.

Where possible, diversify over time: sell modest amounts at planned intervals (bearing in mind that tax and closed periods may affect your plans). You could also consider simple hedging strategies, such as investing in positions likely to do well in a technology sell-off, such as commodities, dividend-paying stocks, and short bonds.

4. Factor in currency risk

If you live in Ireland but have dollar-denominated compensation, consider the effect of foreign exchange movements on your wealth. The value of the US dollar in Euro terms has slipped around 10 per cent this year – and could fall further. That is having a material impact for many Irish tech workers.

Take Meta stock as an example. It’s held by many people who work in the owner of Facebook, Instagram and Whatsapp. In dollar terms, the share price is broadly flat for the year to date. But from the perspective of a Euro-based holder, that performance represents a significant decline in value.

5. Consider the need for tax planning

If your employer stock portfolio is getting into big numbers, there may be a need for Ireland-US tax planning. There are some specific implications for Irish investors concerning US Federal Estate Tax (FET). The risk is that this tax is due on your stock holdings, and is cannot be offset against Irish taxes under the US-Ireland double-tax treaty.

This is a complex area which requires specialist tax advice – it’s enough here to note that the tax take can get into big numbers quickly. The US FET rate starts at an incremental rate of 18% and soon arrives at the current maximum rate of 40%. US FET is charged on the value of the holding whereas Irish capital gains tax is 33% of the gain.

Working for a fast-growth technology company can provide a great way to grow your wealth. But that growth in wealth creates single stock risk. It is not a substitute for good portfolio construction. A measured plan to diversify over time will usually leave you better protected against the effect of a single company’s fortunes on your financial resilience.