When a significant portion of your net worth sits in a single employer’s stock, the question isn’t whether to diversify. It’s how to do it without triggering a tax bill that undoes the benefit.
Most executives don’t set out to build a concentrated position. It accumulates. Years of restricted stock units vest. Option grants stack up. An employee stock purchase plan runs quietly in the background. Add a few promotions and a rising share price, and one morning you look at your statement and realize a single ticker represents 40, 50, sometimes 70 percent of your investable wealth.
The position got you here. That is exactly what makes it hard to address.
The risk that hides behind good performance
A concentrated position carries a kind of risk that a diversified portfolio does not: company-specific risk. Broad market risk affects everyone and has historically tended to recover over time. Company-specific risk is different. A single accounting restatement, a failed product cycle, a regulatory action, or a change in leadership can impair the value of one stock while the rest of the market moves on without you.
The recovery math is unforgiving. A position that falls 50 percent has to gain 100 percent just to return to even. When that position is also tied to your employer, the exposure compounds, because your salary, your bonus, your unvested equity, and your retirement savings can all depend on the same company. A downturn at the firm can reach your paycheck and your portfolio in the same quarter.
None of this means the stock is a poor investment. It means you may be carrying more risk than your financial plan calls for, and you may not be compensated for that extra risk.
There is also a human element. You know the company. You believe in it. Selling can feel like a vote of no confidence, or like leaving money on the table after years of watching the price climb. Those feelings are understandable, and they are also why concentrated positions tend to persist long past the point where the numbers argue for trimming.
Why selling isn’t as simple as placing a trade
Here is where many executives get stuck. The shares that have appreciated the most are often the ones with the lowest cost basis, which means selling them can generate a substantial capital gains liability. Sell a large block in a single year and you may push into a higher bracket, trigger the net investment income tax, and send a meaningful share of the proceeds to taxes.
The picture gets more complicated for insiders. If you hold material nonpublic information, your trading may be limited to open windows, and you may need a pre-arranged plan to sell at all. Incentive stock options carry their own alternative minimum tax considerations. Each layer adds friction, and friction is why so many people do nothing.
Doing nothing is itself a decision. It just is not usually the one you would choose on purpose.
The strategies that exist, and the tradeoffs that come with them
There is more than one path out of a concentrated position, and most of them can be paced to manage the tax impact rather than absorb it all at once. The right combination depends on your cost basis, your bracket, your time horizon, your charitable intentions, and your estate plan. A few of the tools advisors use:
Selling on a schedule. Rather than liquidating in one tax year, you spread sales across multiple years to keep gains within target brackets. For insiders, a written trading plan (often a Rule 10b5-1 plan) can allow sales to continue through closed windows under pre-set instructions. The tradeoff is time: you stay exposed to the stock while you unwind.
Gifting appreciated shares to charity. Donating long-term appreciated stock to a donor-advised fund or directly to a charity can generally let you avoid the capital gain on the donated shares while taking a deduction for the fair market value, subject to IRS limits. For executives who give anyway, this redirects dollars that would otherwise go to taxes. A charitable remainder trust can extend the idea by selling the position inside the trust without an immediate gain, paying you an income stream, and leaving the remainder to charity. These strategies suit people with genuine charitable intent. They are not a fit for everyone.
Exchange funds. These vehicles let you contribute concentrated shares into a pooled fund alongside other investors holding their own concentrated positions, receiving a diversified interest in return without triggering a sale. They can defer the gain, but they come with multi-year lockups, eligibility requirements, and fund-level costs that have to be weighed against the benefit.
Offsetting gains elsewhere. A separately managed account run as a direct index can harvest losses across individual holdings over time, producing realized losses you may be able to use against the gains from selling your concentrated stock. This will not erase the tax, but it can reduce it while keeping you invested in the market.
Hedging the position. For larger holdings, strategies such as a protective put or a collar can limit downside while you decide on a longer-term plan. These are more advanced, carry their own costs, and can have tax consequences of their own, so they call for careful structuring.
Coordinating with your estate plan. How and when you transfer shares matters for wealth transfer. Gifting shares to family members in lower brackets, funding trusts, and understanding the step-up in cost basis that can apply at death are all part of the same conversation. For families with significant wealth, this is where concentrated-stock planning, estate planning, and family office level coordination meet.
No single one of these is the answer by itself. Used together, and sequenced over time, they can help move you from concentrated to diversified in a way that respects both the tax code and your goals.
The part that is hard to do alone
A concentrated stock decision sits at the intersection of investment strategy, tax planning, and estate planning, and a change in one area affects the others. That is the reason it is difficult to handle piecemeal, with your investments held in one place, your taxes handled in another, and your estate documents sitting in a drawer.
My practice is built around coordinating those pieces. I work alongside your CPA and your estate attorney so the diversification plan, the tax strategy, and the wealth-transfer plan are built to fit together rather than work against each other. The goal is a clear, paced plan that reflects your actual situation, not a generic rule of thumb.
Where to start
If a single stock represents a large share of your net worth, the most useful first step is a conversation about your specific position: your cost basis, your timeline, any trading restrictions, and what you eventually want the wealth to do. From there we can model what an unwinding plan might look like and what it could mean for your taxes and your long-term goals.
To talk through your situation, schedule a call with me directly.
Advisory services offered through United Advisor Group, LLC, a Registered Investment Adviser (CRD #324205). Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Ftacek Financial Services, LLC and United Advisor Group are independent entities. Diversification does not guarantee a profit or protect against loss. This article is for educational purposes only and is not individualized investment, tax, or legal advice. Consult your own advisors before acting on any strategy described.