A concentrated stock position is when a single company's stock makes up a large share of your net worth. It often happens for good reasons. You may have received shares through years of equity compensation, founded or invested early in a company, or simply held a stock that grew far faster than everything else. The result can be significant wealth, along with significant single stock risk.
People in this situation often ask: How much is too much in one stock? Should I sell even if I believe in the company? What about the taxes? Are there ways to reduce risk without selling everything at once? This article walks through how to think about concentration and the strategies people commonly consider.
What Counts as a Concentrated Stock Position?
There is no official definition, but many planners start paying close attention when a single stock makes up a meaningful share of a person's investable assets, often cited as around 10 percent or more.
How Concentration Happens
Equity compensation: RSUs, stock options, and employee stock purchase plans can add up year after year.
Founder or early investor shares: Stock in a company you helped build.
Inheritance: Shares passed down through a family.
Strong performance: A single holding that outgrew the rest of a portfolio.
Look at Your Total Exposure
If you work for the company, your salary, bonus, unvested equity, and job security are also tied to it. Your real exposure may be larger than your account statement shows.
Why Single Stock Risk Matters
A diversified portfolio spreads risk across many companies. A single stock does not.
Risks to Consider
Company-specific events: Earnings misses, leadership changes, lawsuits, or competition can affect one company sharply.
Industry shifts: Changes in technology or regulation can affect an entire sector.
Volatility: Individual stocks tend to move more than a diversified portfolio.
Recovery risk: Some stocks that fall sharply may take a long time to recover, and some never do.
The Emotional Side
Concentrated positions are often tied to loyalty, pride, or a sense of identity. It can feel wrong to sell a stock that made you wealthy. Recognizing these feelings can help you make clearer decisions.
Our article on asset class correlations explains why holdings that move differently can matter in a portfolio.
Questions to Ask Before Making a Change
What Is This Money For?
Near-term goals: Money needed for a home, education, or retirement soon may not be well suited to a single stock.
Long-term or legacy money: Your time horizon may change how much risk you are willing to keep.
How Much Could You Afford to Lose?
Imagine the stock dropped by half. Would your goals still be on track? This simple exercise can clarify how much concentration you are comfortable with.
What Are the Tax Costs?
Selling shares with large gains can trigger capital gains taxes. Our article on embedded capital gains explains how unrealized gains can affect decisions.
How to Diversify a Concentrated Stock Position
There is no single answer. People often use more than one approach over time.
Gradual Selling
What it is: Selling a set amount on a schedule, such as quarterly or annually.
What to keep in mind: Spreading sales across tax years may help manage taxes and reduce the pressure of timing the market.
Pairing Gains With Losses
What it is: Using losses elsewhere in a portfolio to offset gains from sales.
What to keep in mind: Learn more in our article on tax loss harvesting.
Charitable Giving
What it is: Donating appreciated shares directly to charity, a donor-advised fund, or a charitable trust.
What to keep in mind: Giving appreciated stock may avoid capital gains on the donated shares and may provide a deduction, subject to IRS rules.
Gifting to Family
What it is: Transferring shares to family members or trusts as part of estate planning.
What to keep in mind: Gift tax rules and the recipient's cost basis matter.
Hedging Strategies
What it is: Using options or other tools to limit downside on a position.
What to keep in mind: These strategies can be complex, carry costs, and are not suitable for everyone.
Exchange Funds
What it is: Pooled vehicles where investors contribute concentrated stock in exchange for a share of a more diversified pool.
What to keep in mind: They typically have eligibility requirements, holding periods, and limited liquidity.
Special Considerations for Executives
If you are an executive or insider, additional rules may apply.
Trading windows: Company policies may limit when you can buy or sell.
Pre-planned trading plans: Some executives use written trading plans, known as 10b5-1 plans, to schedule sales in advance.
Ownership guidelines: Some companies require executives to hold a minimum amount of stock.
How Auric Capital Partners Can Help
Auric Capital Partners is located in Aliso Viejo, California. The firm describes its approach as bringing "clarity, structure, partnership" and "disciplined thinking and genuine connection to every part of your financial life."
Auric serves executives and professionals with equity compensation and business owners navigating liquidity events and retirement, as well as families experiencing major life transitions and retirees. Services include investment advisory services, tax minimization strategies, financial planning, estate planning, multigenerational planning, and retirement income planning. See our Services page.
As the firm puts it, Auric works with "founders, professionals, and families who have built something meaningful. People who do not need another pitch, but a real partner." Learn more about us.
Let's Connect
If one stock makes up a large part of your wealth, a conversation may help you weigh your options. No scripts, no pressure. Schedule a conversation with Auric Capital Partners, and we will respond with thoughtful, personalized support.
Frequently Asked Questions
What is considered a concentrated stock position?
There is no official threshold, but many planners consider a single stock that makes up around 10 percent or more of investable assets to be a concentrated position.
How do I diversify a concentrated stock position without paying too much tax?
People often consider gradual sales across tax years, pairing gains with losses, donating appreciated shares, and gifting strategies. The right mix depends on your tax situation.
Should I sell my company stock?
It depends on your goals, total exposure, taxes, and company rules. Many people consider reducing exposure over time, especially if their job is tied to the same company.
What is an exchange fund?
An exchange fund is a pooled vehicle that lets eligible investors contribute concentrated stock in exchange for an interest in a broader pool, typically with holding periods and limited liquidity.
Can I donate stock instead of cash?
Yes. Donating appreciated stock to a qualified charity may avoid capital gains on those shares and may provide a tax deduction, subject to IRS rules.
What is a 10b5-1 plan?
It is a written plan that allows company insiders to schedule future stock sales in advance, which may help them sell shares under securities rules.
This content is for educational and informational purposes only and should not be considered investment, tax, or legal advice. It is not a recommendation to buy or sell any security or to adopt any particular investment strategy. Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results, and no strategy can guarantee a profit or protect against loss. Please consult with a qualified professional about your individual situation. Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Adviser. Auric Capital Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.
