Free guide

Diversifying a Concentrated Stock Position

A plain-English look at the trade-offs, the methods and the questions to settle before you sell a single share.

1. Why concentration deserves a plan

A single stock can do very well, and it often has, which is how the position got large. But a single company carries risks a diversified portfolio doesn’t: one bad quarter, regulatory change or industry shift can permanently reduce your wealth. If you also work for the company, your paycheck and your portfolio depend on the same outcome.

Many advisors treat more than 10–20% of investable assets in one stock as concentrated. The right threshold for you depends on how much of your lifestyle and goals the position needs to fund.

2. Decide what “enough” looks like

Start with your plan, not the stock. What does the rest of your balance sheet need to cover spending, goals and a margin of safety? Whatever the stock isn’t needed for is what you can afford to keep. That answer sets your target concentration.

3. Ways to sell down

  • Price triggers. Sell set amounts at pre-set price levels, deciding in advance rather than in the moment.
  • Time-based glidepath. Commit to a target concentration by date, so progress continues even if the stock never reaches a trigger.
  • Combined approach. Use both: triggers speed things up when the stock is strong, and the glidepath keeps a floor on progress. This is the approach we generally favor.
  • Insiders. If you’re subject to trading windows, a Rule 10b5-1 plan can schedule sales in advance. Coordinate with your company’s legal team.

4. Tax considerations

  • Lot selection. Selling highest-basis lots first can reduce the gain recognized on each sale.
  • Loss harvesting. Losses realized elsewhere in your portfolio can offset gains from the sale.
  • Timing across tax years. Spreading sales across calendar years can help manage federal capital gains brackets, the 3.8% net investment income tax and, for Massachusetts residents, the additional 4% surtax on income above roughly $1 million (indexed annually). Other states have their own rules. New York and California tax capital gains as ordinary income, while Florida has no state income tax.
  • Holding period. Shares held more than a year generally qualify for long-term capital gains rates.

Paying some tax to diversify is often the right trade. The goal is to manage the bill, not to avoid selling.

5. Charitable and family strategies

  • Donor-advised fund. Giving appreciated shares can provide a deduction at fair market value and avoid the capital gain on the shares you give.
  • Charitable remainder Trust. Can turn low-basis stock into a diversified income stream while supporting charity, but requires an attorney and careful design.
  • Grantor Retained Annuity Trust (GRAT). Can move future growth on the stock to your heirs with little or no gift tax, as long as the stock grows faster than an IRS-set interest rate. You must outlive the GRAT’s term, and it requires an attorney and careful design.
  • Gifts to family. Gifting shares within annual or lifetime exclusion amounts can move future growth out of your estate. The recipient takes your cost basis.

6. Other tools to discuss

  • Exchange funds. Pool your shares with other investors’ for a diversified interest, usually with lock-ups and eligibility requirements.
  • Hedging. Collars or covered calls can limit downside or generate income while you sell over time. They add complexity and their own risks.
  • Borrowing against the position. A line of credit secured by your shares can raise cash without a sale, but it adds leverage to an already concentrated bet, and a price drop can force sales at the worst time. At many brokerage firms, the advisor is also paid on the loan balance. Ask how the person recommending it is compensated.

7. Questions to answer before you start

  • What concentration level would let you sleep at night?
  • What would a 50% drop in the stock mean for your plan?
  • Which lots do you hold, and what is the cost basis of each?
  • Are there trading restrictions, vesting schedules or lock-ups?
  • Do you have charitable goals that appreciated stock could fund?
  • Who on your team (advisor, CPA, attorney) owns each step?

Great Point builds concentrated-stock plans with editable assumptions and a quarterly glidepath, coordinated with your CPA and attorney. Request a review of your position.

This guide is educational and is not individualized investment, tax or legal advice. Tax rules change and depend on your circumstances; consult your CPA and attorney before acting.

Scroll to Top