Concentrated Stock Positions: How to Handle Them

Aug 7

It’s common to meet people—especially execs, early purchasers, and people who received an inheritance—with a huge chunk of their net worth in one stock or fund.

That stock may have created serious wealth, but it’s also one of the biggest risks to your long-term financial stability.

If you’re in this boat, here’s the key truth: concentration builds wealth, but diversification protects it.

Let’s walk through how to manage this kind of position without blowing up your tax bill.

What’s a Concentrated Stock Position?

In simple terms: if more than 25% of your net worth is tied to a single stock, you’re concentrated.

Many clients we talk to are far beyond that—50%, 70%, even 90% in one company. This happens through:

RSUs or ISOs that haven’t been sold
Employee stock purchase plans (ESPPs)
Company stock held long after IPO
Inheritance from family members or trusts
Even normal stock purchases made as an investor

It might feel like a golden ticket—but when your income, career, and wealth are all tied to one company, the risk stacks up fast.

Strategies to Manage and Diversify

1. Direct Indexing

This is one of the most tax-smart ways to start selling without getting crushed on taxes.

How it works:

You build a portfolio that mimics a broad index.
As that portfolio moves, you harvest tax losses.
You use those losses to offset gains when you sell your concentrated shares.

Some go a step further with long-short direct indexing, layering in more loss-harvesting potential.

This lets you unwind your position slowly—without triggering an outsized tax bill.

2. Prepaid Variable Forward + Direct Indexing

More advanced, but powerful.

Basic flow:

You pledge your concentrated shares.
A lender gives you 75–90% of the value in cash.
You reinvest that cash into a diversified strategy—often direct indexing.

You keep exposure to your original shares, get liquidity to diversify, and delay the sale (and tax hit) until later.

This works well for high-net-worth folks who need flexibility without dumping shares all at once.

3. Charitable Giving

Donating stock is one of the cleanest ways to offload appreciated positions.

Why it works:

You get a charitable deduction for the full value.
You skip the capital gains tax entirely.

This works through:

Donor-Advised Funds (DAFs)
Direct donations to nonprofits
Charitable Remainder Trusts (CRTs)

This kills two birds: removes the concentrated risk, and funds your giving goals.

4. Exchange Funds

Not for everyone. These require long-term commitments and a higher liquid net worth.

Exchange funds let you swap your stock for a slice of a larger, diversified basket—without triggering capital gains right away.

Catch:

You have to commit for 7+ years.
They’re illiquid and less flexible than other options.

But if you're looking for passive diversification without an outright sale, it's on the table.

5. Option Collars

Want to keep the stock but reduce risk? A collar sets a floor and a ceiling.

You buy a put (to protect the downside).
You sell a call (which caps the upside but gives you income).

It’s less about taxes, more about protecting gains while you slowly sell or diversify.

Not perfect, but can work as part of a broader plan.

6. Set a Gains Budget

Sometimes you just want to keep it simple.

Decide how much in capital gains you’re willing to realize each year.
Stick to a schedule: maybe sell 20–25% per year until you're down to 10% of your portfolio.

This approach gives you predictability and lets you plan around tax brackets, charitable deductions, or Roth conversions.

Bottom Line

Don’t let fear of taxes paralyze you, and don't go into managing the position without a plan.

You’ve already done the hard work to build wealth. Now the focus shifts to preserving it and managing risk.

Whether you’re sitting on $500K or $10M in a single stock, it’s worth building a plan to unwind that position on your terms—not the market’s.

Work with someone who understands how to pair tax strategies with real portfolio planning.

Avoiding the conversation is the riskiest move of all.

Finn Price