One stock built your wealth. Now it is the biggest risk to it, and you cannot sell without handing a fortune to the IRS. That is a problem with more than one answer.
A concentrated stock position is the kind of problem people are happy to have, right up until they understand it. One holding, usually built from founder equity, vested RSUs, an inheritance, or a winner you simply never sold, has grown into an outsized share of your net worth. It made you wealthy. Now it is the single largest threat to that wealth.
The risk is obvious once you say it out loud: your financial future is riding on one company's earnings calls, one management team, one product cycle, one regulatory decision. Diversification is the one free lunch in investing, and a concentrated position is the opposite of it.
The trap is that the obvious fix makes a second problem. The position almost always carries a low cost basis, which means selling it realizes a large capital gain. Between federal long-term capital gains rates, the net investment income tax, and state tax, a Californian can hand over more than a third of the gain. So the holder freezes: too risky to keep, too expensive to sell. Most advisors meet this with a shrug and a recommendation to "trim over time." That is a non-answer.
Selling and paying the tax is sometimes correct. If a single stock is 60 percent of your wealth and a bad quarter would change your life, reducing that risk is worth a tax bill. But selling the entire position in one year, with no planning around it, is almost never the most efficient path.
The reason all-at-once selling is inefficient is that the tax is not a fixed toll. It is a variable you can manage. The same dollar of gain costs very different amounts depending on the year you realize it, the losses you have banked against it, whether it is paired with a charitable gift, and whether you needed to sell the shares at all to get what you wanted from them.
The right frame is not "sell or hold." It is a sequence of decisions across four goals: diversify the risk, hedge what you keep, monetize without selling where possible, and give the most appreciated shares so the gain is never taxed at all. Most positions get solved with a combination, staged over several years.
There is no single product that fixes a concentrated position. There is a toolkit, and the skill is in matching tools to your basis, bracket, timeline, and intentions for the stock.
This is the workhorse. Instead of holding a single stock and an index fund next to it, you hold the index as individual stocks in a separately managed account, built deliberately to underweight the sector and factors your concentrated position already gives you. Because you own the names directly, losses can be harvested at the security level all year, even when the market is up. Those banked losses then offset the capital gains you realize as you trim the concentrated position. The result is a glide path: you diversify on a schedule, and the loss engine pays down part of the tax bill as you go. See How Direct Indexing Works for the mechanics.
An exchange fund pools concentrated holdings from many investors into one diversified partnership. You contribute your shares, receive a pro-rata interest in the pool, and defer the gain on your original position. After the required holding period, usually seven years, you can redeem into a diversified basket. It buys instant diversification without a taxable sale, at the cost of illiquidity and specific eligibility requirements. It is a fit for some positions and a poor fit for others, which is exactly why it should be one option on the table, not the only one.
Sometimes you want to keep the stock, at least for now: a lockup, an anticipated step-up, a thesis you still believe. Hedging lets you hold while removing the catastrophe risk. A protective put sets a floor under the price. A collar pairs that put with a sold call, which finances the protection so the hedge can cost little or nothing, in exchange for capping some upside. Neither triggers a sale, so neither realizes the gain.
A variable prepaid forward lets you receive a large share of the position's value in cash today while deferring the actual sale to a future settlement date, and it builds in downside protection along the way. It is a way to monetize a position, get liquidity to diversify or spend, and defer the taxable event, without selling the shares outright now. The structures are nuanced and must be built carefully to achieve the intended tax treatment.
If you are giving anyway, give the right shares. Donating appreciated stock to a donor-advised fund means the embedded gain is never taxed, and you generally deduct the full fair market value. For larger amounts, a charitable remainder trust can sell the position inside the trust without immediate tax, pay you an income stream for life or a term, and leave the remainder to charity. Both turn your lowest-basis, most-appreciated lots, the worst ones to sell, into the best ones to give.
If what you actually need is cash rather than diversification, selling is the wrong tool. Borrowing against the portfolio, including through box spread financing, can provide liquidity at rates close to Treasuries without realizing any gain. The shares stay invested, the gain stays unrealized, and if the position is ultimately held until death, the basis may step up. See our guide to box spread borrowing for how that financing works.
Most firms that handle concentrated stock sell a product: an exchange fund, a structured hedge, a charitable vehicle. The product is real, but leading with it is backwards. The position does not need a product. It needs a sequence.
We start with the full picture: how concentrated you actually are relative to your wealth, your cost basis lot by lot, your marginal rates this year and your projected rates in the years ahead, your liquidity needs, your charitable intentions, and your timeline for the stock. Only then do we map tools to the situation, usually more than one, staged across multiple tax years to keep each year's realized gain inside the bracket that makes sense.
A typical plan layers them. A direct-indexing completion portfolio diversifies and generates the losses that absorb part of the tax. A hedge protects the shares still held. The lowest-basis lots are routed to charitable gifts so their gain is never taxed. Liquidity needs are met by borrowing rather than selling. And the realized sales that do happen are timed to the years that cost the least. None of this works in a silo, which is why we coordinate it directly with your CPA. That is how institutional portfolios handle concentration, and it is how we handle yours.
We will map your basis, your bracket, and your options, and build a sequence that reduces the risk while paying the least tax legally required.