Strong market performance from industry leaders like Nvidia and Apple, alongside the public market debut of high-profile companies like SpaceX, has brought portfolio concentration top of mind for many investors. Whether a large position came from years of patient holding, an inheritance, founding a company, or equity compensation earned over a career, single-stock growth is often how meaningful wealth is built in the first place.
At the same time, holding onto an oversized position introduces a level of risk that can quietly compromise what might have taken decades to build. When one company makes up 20%, 40%, or more of your investment portfolio, your personal financial security becomes tied to the ongoing success of that single business.
Deciding how to handle that exposure is rarely simple, and it is almost never just a question of numbers.
Emotions and Tax Realities
Most people have a real, personal attachment to a concentrated holding. If you worked at the company, those shares represent hard work and conviction in the mission. If you inherited them, they can feel like a family heirloom you are responsible for stewarding. If you are a founder, the stock is closely tied to your own identity. Trimming shares can feel like betting against a company you believe in—or inviting regret if the price keeps climbing.
Alongside emotional loyalty, there is the tax bill to consider.
Selling a low-basis stock triggers federal capital gains taxes (up to 20%) plus the 3.8% Net Investment Income Tax for high earners. In California, where capital gains are taxed as ordinary income without preferential long-term capital gains rates, the state takes up to another 13.3%. An all-in tax hit near 37% makes holding onto the stock feel like the easiest path.
For investors whose primary goal is passing wealth to the next generation, holding taxable shares for life to receive a step-up in basis can eliminate capital gains for heirs. However, this strategy requires accepting company-specific market risk over what could be many years or decades.
Hesitating to sell because of taxes is completely understandable. However, while tax efficiency is critical, taxes should never be the sole driver of whether to hold or sell.
The Risk of Concentration
Every business faces headwinds it cannot control, no matter how strong its competitive position seems today. Leadership changes, shifting consumer behavior, new technology, societal changes, and regulatory pressure can all alter a company’s trajectory quickly.
“When one holding dominates your balance sheet, company-specific vulnerabilities become your own.”
When one holding dominates your balance sheet, company-specific vulnerabilities become your own. Diversification does not eliminate market ups and downs, but it does reduce the impact that any single investment can have on your overall financial picture. While outsized growth in a single business may have built wealth, diversification is what ultimately protects it.
“While outsized growth in a single business may have built wealth, diversification is what ultimately protects it.”
Strategies for De-Risking
Managing a concentrated holding is not an all-or-nothing proposition. In most cases, the goal is to build a thoughtful, tax-aware plan to reduce risk over time.
A few practical approaches include:
Gradual Selling: Spreading sales across multiple tax years helps smooth out market volatility and can help prevent pushing your income into a higher tax bracket.
Tax-Loss Harvesting: If other investments within your broader portfolio have unrealized losses, those losses can be harvested to directly offset the capital gains realized from selling appreciated shares, making diversification substantially more tax-efficient.
Charitable Giving: Donating appreciated stock directly to a charity or Donor-Advised Fund (DAF) eliminates capital gains taxes and provides an immediate tax deduction. For larger holdings, a Charitable Remainder Trust (CRT) offers an additional layer of utility: the trust can sell the concentrated shares tax-free, reinvest 100% of the proceeds into a diversified portfolio, and pay you or your family an ongoing income stream before the remaining assets pass to charity.
Hedging Strategies: Options can sometimes protect against downside risk without an immediate sale, though they bring their own costs, tax nuances, and structural complexity. It is also worth noting that corporate insider policies generally prohibit active employees from hedging company shares, so this is typically only an option for investors no longer tied to the company.
Beyond these foundational approaches, other specialized strategies exist. Because every family’s tax picture, cash needs, and estate goals are different, any strategy should be considered and developed collaboratively with your Investment Counselor, CPA, and estate attorney.
Finding the Right Balance
Like many financial planning decisions, there are exceptions to every rule. A concentrated position is not automatically a problem just because it crosses a specific percentage of a portfolio. If you have substantial assets outside the portfolio, reliable income streams, and low living expenses, holding a larger position might fit comfortably within your risk tolerance.
The key is to make sure the investment supports what you want your money to accomplish without exposing you to unnecessary risk.
Ultimately, managing a concentrated stock position is about protecting success. Thoughtful planning can help ensure your portfolio honors the achievements of the past while remaining resilient for the opportunities and challenges of tomorrow.
The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.
