Concentrated Stock Position

Do you have a concentrated stock position?

If you have a lot of company stock or inherited a large stock position, we can help you understand your options for managing the risk and potential gains. 

Many advisors will guide you towards selling the positions and diversifying as quickly as possible.  

But you should consider all of your options, such as getting paid to sell the stock using Covered Calls or Option Collars to protect your gains. 

Contact us for a free assessment of your portfolios potential to generate income from a concentrated stock position and the best way to exit and transition the position.

why is it important?

Having a concentrated stock position can be risky. If the company does well, your wealth could grow significantly. But if the company runs into trouble, you might lose a big portion of your wealth quickly. It’s like putting all your eggs in one basket—if the basket drops, all the eggs could break.

An example

Let’s say Sarah works for a tech company called “Techify” for 10 years. She gets part of her salary in Techify stock, and over time, she ends up with 80% of her total investments tied up in Techify shares. If Techify's stock price goes up, Sarah's portfolio grows a lot. But if Techify’s stock price crashes, Sarah's portfolio will take a big hit because so much of her wealth is in that one stock.

why is it a problem?

1.     High Risk: If the company faces issues (like bad earnings, a lawsuit, or competition), the stock value could drop sharply.

2.     Lack of Diversification: Owning a mix of investments (stocks, bonds, etc.) spreads out risk. A concentrated position doesn’t give you that safety net.

3.     Emotional Attachment: If the stock comes from a company you worked for or believe in, it can be hard to sell, even if it’s the smart thing to do.

What can you do about it?

1.     Diversify: Gradually sell some shares and invest the money in other assets to reduce risk.

2.     Hedging: Use strategies like options or collars to protect against a price drop without selling the stock outright.

3.     Charitable Giving: Donate some stock to reduce taxes while helping a cause you care about.

In short, a concentrated stock position can create big opportunities but also big risks. Managing it carefully is key to protecting and growing your wealth.