Maybe it's company stock from a long career at a public employer. Maybe it's a position you bought early and watched grow into 30%, 40%, or 60% of your liquid net worth. Maybe it's a private business interest you're about to sell, with proceeds expected to dwarf everything else in the household. Whatever the source, concentrated stock is the single most common high-stakes decision in our planning conversations.
Why concentration is risky
A diversified S&P 500 portfolio rarely loses more than 50% in a sustained downturn. Individual stocks routinely lose 70%, 80%, or more — and many never recover. Names like General Electric, Citigroup, AIG, Lehman Brothers, Enron, Lucent, and a long list of others were once "can't fail" positions in concentrated employee portfolios. Most concentrated positions don't end well; the ones that do are remembered, the ones that didn't are forgotten.
Why selling is hard
Three reasons:
- Tax cost. A long-held appreciated position carries significant unrealized capital gains. Selling triggers federal long-term capital gains (up to 23.8% with NIIT) plus state tax. The bill can be 30%+ of the gain.
- Loyalty. The position represents a career, a founder's life work, or a parent's legacy. Selling feels disloyal even when it isn't.
- Anchoring. "It's already up 8x — what if I sell and it goes up another 5x?" The math is asymmetric: the avoided downside risk usually exceeds the foregone upside, but it doesn't feel that way.
The tools, briefly
Direct sale (with a tax plan)
Sometimes the right answer is just to sell — but in a way that minimizes the tax bite: spreading sales across multiple tax years, harvesting losses elsewhere to offset, donating shares to a donor-advised fund instead of cash, or selling in a year of unusually low income (sabbatical, business loss).
Exchange funds
Exchange funds (also called swap funds) let you contribute concentrated stock and receive ownership of a diversified pool — without triggering tax on contribution. There's a 7-year lockup, and you give up some control, but for very large positions the tax efficiency is meaningful.
Charitable Remainder Trusts (CRTs)
If charitable intent is part of the picture, a CRT can sell appreciated stock tax-free, pay you an income stream for life, and leave the remainder to charity. Useful when concentration meets philanthropy.
Options collars
For shorter-term protection (e.g., ahead of a merger or vesting event), buying puts and selling calls (a collar) can cap downside while deferring sale. Costs are real; this is a hedge, not a strategy.
How to think about the decision
- Define the household risk tolerance — how much of net worth could you afford to lose without changing your life?
- Set a target concentration — typically 5–15% for a well-diversified investor
- Build a glide path — multi-year sales rather than one liquidity event
- Sequence with your tax situation — coordinate with CPA on annual brackets, harvested losses, and planned giving
Concentrated stock isn't a single decision; it's a multi-year strategy. Done well, it preserves most of the upside while shedding most of the catastrophic risk. Done badly, it's the source of more retirement regret than any other planning failure we see.
Talk to an IronBridge advisor about modeling exit options for your specific situation.