Concentrated Stock Positions

Evaluating Alternatives & Managing Risk

It’s common for an investor to have a significant percentage of their net worth invested to a single stock. That’s especially true for investors who spent a significant portion of their career with one company or who have family ties to a business.

If you have a concentrated position, it’s likely that holding has been financially rewarding for you and your family. You may be hesitant to liquidate or diversify the position. Unfortunately, as one thinks about retirement, a concentrated portfolio will likely fluctuate more than a diversified portfolio.

Unless there is a stable source of regular income, retirees are generally uncomfortable with significant portfolio fluctuations. One particular challenge with concentrated holdings is when they are in taxable accounts and cannot be sold without incurring significant capital gains taxes. What is an investor to do?

There is no universal solution for every investor. The solution depends on your specific facts and circumstances and should be evaluated in terms of the impact on your overall financial plan. Often times, using a combination approach — over a multi-year period — is an appropriate solution. Here are some strategies that may be able to reduce portfolio fluctuations:

  • Hedging strategies that would limit the downside risk but would likely put a limit on the upside reward.
  • Go short investment(s) that tend to move in the opposite direction of your stock.
  • Using a variable pre-paid forward.
  • Periodically selling some holdings.
  • Donating to charity and/or a charitable remainder trust

Working with your other professional advisors, JIC will evaluate the impact an individual or combination of alternative strategies may have on achieving your financial goals and will help you develop a strategy that is right for your needs and goals.