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It’s funny how emotional attachment can override the most basic rational thinking in humans. Whether it’s someone that runs up thousands of dollars on a credit card when they know they shouldn’t for the latest tech bauble or someone putting their entire 401(k) balance in company stock, an emotional attachment can overcome the basics that we all know are true.

The basic rule being violated here, obviously, is that we should all diversify our investments. According to a study referenced on CNN Money, company stock accounts for 25% of the value of all assets in companies that offer their own stock as an option. More than one in five people have at least half their assets in company stock!

Some of that obviously has to do with companies that make 401(k) matches in company stock and then refuse to allow employees to sell the match. If your company matches the first 3% of your salary and you only put in 3%, half of the value of your 401(k) will be in company stock. That is a situation you can’t get around (even though you should be putting in much more unless you’re investing elsewhere).

So, if you have more than say 10% of your 401(k) in company stock what do you do? First, check to see if you are really locked in or if your company just makes it seem like you are. If you are not locked in, I would sell all the stock you need to get to 5%-10% of your 401(k). If you can’t sell all at once, you can sell in chunks. But keep selling until you get to your goal. Use the proceeds from the stock sales to purchase other options in your 401(k) to diversify your investments.

If you are locked in, there’s not a lot you can do in your 401(k). In this case, I would limit the amount that you contribute to your 401(k) to maximize the company match. I would then take the money you would have contributed to your 401(k) and contribute it to an IRA instead. You will still get the tax break and you can diversify better than you could in a 401(k). I think that using an IRA to supplement a 401(k) is always a good idea to diversify, but many people either do not want to do the homework or cannot trust themselves to make the IRA contribution every month. In these cases, continue to invest in the 401(k) but make sure that your contributions stay far, far away from your company’s stock.