If you’re holding a large position in a single company’s stock, whether from Restricted Stock Units (RSUs) that have vested over a long career, a founder’s stake, or a long-held position that grew into concentration, you might already know the tension: The stock that built your wealth is also the position most likely to reshape it.
That’s the double-edged sword of a concentrated equity position.
Diversification is the standard answer, and it’s the right instinct. And “just diversify” is a starting point, not a strategy. The conversation that matters more is how, when, and through which tools, and that’s where trading plans, early option exercises, and gifting strategies come into our planning process.
Why “Just Diversify” Isn’t the Whole Answer
If you’ve held a concentrated position for years, you know that selling can feel a bit like betting against the company. That stock represents years of your work and career success. There’s also often the element of watching what your colleagues are doing, which shapes the decision almost as much as the fundamentals do.
Here’s how I want you to think about it. Diversifying isn’t a statement about your confidence in the company. It’s a decision about protecting what you’ve already built.
One question I’ll often ask when we sit down together is, “If you had the same amount of cash today, would you invest it all in one stock?” That reframes the conversation from what you’ve already accumulated to what you would intentionally choose going forward.
It’s the same thing that happens each time your RSUs vest. The company is essentially giving you a cash bonus, and in turn buying company stock on your behalf. If you are in an open trading window, you could sell those shares that very same day and walk away with the cash.
A Long-Term Approach
Our goal together is to reduce the risk that a single company determines your family’s financial future. You don’t have to go from 100 percent to zero overnight. In our work together, we’ll often build a gradual diversification strategy so you can continue to participate in the company’s potential while creating financial resilience and long-term flexibility.
You might also choose to continue holding a certain percentage of company stock, provided it aligns with your overall financial plan. It carries a sense of pride, and it can be an opportunity for future wealth accumulation in a moderated way. If the stock goes up, that’s a win. If it goes down, you’ve diversified enough that your financial plan still works.
The Teeter-Totter: Balancing Tax vs. Risk
If you hold a concentrated stock position with massive, unrealized capital gains, we have to manage a fundamental trade-off. Think of it as a teeter-totter:
- Low Tax = High Risk: If you do nothing, your tax bill on this holding stays low, but your financial future is entirely exposed to a single stock.
- Low Risk = Higher Tax: If you want to protect your wealth, you have to sell stock and trigger a tax bill.
There’s no version of this where both sides of the teeter-totter sit level at the same time; reducing your risk will cost you some taxes. I have sat with clients who let their fear of taxes dictate their strategy, and it rarely ends well. When a concentrated position implodes, the wealth disappears, and avoiding the tax bill turns out to have cost far more than paying it would have. In the toughest cases, clients had to go back to work or drastically downsize their lifestyle plans.
Our recommended approach is straightforward. We want to diversify enough of the position to give you confidence in your financial future, while retaining a manageable percentage of the stock to capture future growth or maintain your personal connection to the company.
Letting the tax bill make 100% of the decision is a dangerous strategy because concentration is never truly free, even if it feels that way while the stock price is going up. The next three tools are designed to help us shape exactly how we navigate this trade-off.
Managing Concentrated Stock: Three Mechanics That Go Beyond Diversification Alone
When we sit down to work through your concentrated position, I won’t lead with, “Should we sell?” I’ll lead with, “What are we trying to accomplish?” Once we’ve defined the objective together, we can evaluate the available tools. Three of them come up most often.
1. A Trading Plan for Pacing the Exit
If you want to diversify without second-guessing every headline, a structured trading plan brings discipline to what could otherwise become an emotional decision. The plan sets your diversification path in advance, so your choices come from strategy rather than from wherever the stock happens to be trading that week.
This is where the “you don’t have to go from 100 percent to zero overnight” idea takes shape in practice. A trading plan lets you keep participating in the company’s potential while steadily building the diversified base that protects the rest of your plan.
2. Early Option Exercise for a Better Tax Position
For certain stock options, exercising early may reduce future tax exposure and begin the holding period for more favorable long-term capital gains treatment. Because the tax implications vary based on the type of option and your individual circumstances, this strategy should always be coordinated with your tax advisor. While the potential tax savings can be meaningful, early exercise only makes sense if it aligns with your cash flow, risk tolerance, and overall long-term financial plan.
Early exercise requires upfront cash and can increase your concentration in a single company before you’ve had an opportunity to diversify, since you’re purchasing shares outright rather than retaining the option to buy them later. When it fits within your broader financial strategy, early exercise may help improve the tax treatment of future appreciation on the shares you intend to hold.
3. Gifting Appreciated Stock to Move Growth Outside the Estate
Appreciated shares can be one of the most tax-efficient assets to give. If you’re planning to support causes you care about or transfer wealth to family, gifting shares rather than cash often carries meaningful tax advantages while letting you make the same impact.
Charitable gifting and family gifting both belong in this conversation, especially in the years after your stock’s most substantial appreciation. Gifting appreciated shares now moves that appreciation, and future appreciation, outside your taxable estate. It’s a way to reduce your concentrated position while advancing goals you likely already have.
A Note on the Current IPO Wave
If you’re holding shares through one of this year’s IPOs, the mechanics above apply the same way, with one added wrinkle: lock-up periods. Insiders and pre-IPO investors are typically restricted from selling for a set window after a listing, often ranging from six months to a year. The moment a company goes public and the moment you can act on your position are rarely the same.
That waiting period is where the planning belongs. By the time your lock-up ends, you want your trading plan already set, the tax analysis on early exercise already done, and any gifting strategy already sequenced. Otherwise, you’re making three interconnected decisions at once under pressure.
One Coordinated Plan, Not Three Separate Decisions
Every concentrated equity situation is different. Your tax implications, your company’s outlook, your liquidity needs, and your personal goals all matter, so there isn’t a one-size-fits-all answer. What we can do together is take your version of this and build a plan that lets you lower the risk without giving up the growth.
If your concentrated position has shifted, either because it’s grown, your goals have changed, or your company is approaching a major event, let’s revisit the plan together. We’ll model the trade-offs across taxes, timing, and long-term flexibility, so the path forward feels clear.
And if you’re not yet working with Team Hewins and you’re holding a concentrated stock position, we’d welcome the chance to talk. Book a complimentary Big Decision Clarity session to learn more about how we approach concentrated equity and equity compensation planning.
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Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein.