Written by Jessica Cutrera and Jelmer Kattevilder I 26 August 2026 I 8 minutes read
Many successful investors, business owners, and corporate executives accumulate significant wealth through a single stock. Whether the position originated from equity compensation, an inheritance, founder shares, or years of strong investment performance, a concentrated [1] holding often has large, embedded capital gains. Although the position has proven as a source of wealth to investors, they also become an increasing source of risk exposure to a single business, sector, or market narrative.
A common rule of thumb is that concentration becomes more meaningful when one holding represents roughly 10% to 20% of investable assets. The precise threshold matters less than the broader question: how much of the investor’s future depends on the fortunes of one company?
Selling may appear to be the obvious answer, but the decision is often complicated by embedded capital gains, emotional attachment, trading restrictions, charitable intentions, or concern about giving up future upside. That is why concentrated stock planning is usually best approached as a multi-year wealth strategy rather than a single transaction.
A coordinated plan may combine staged sales, tax-loss harvesting [2], direct indexing, option-based risk management, and charitable or estate planning. The right mix depends on the investor’s tax profile, cash-flow needs, restrictions, and objectives.
Start with the Trade-offs
Before selecting a strategy, investors should understand how the position fits into their wider financial life. Four questions usually frame the discussion:
- How much company-specific risk does the holding create relative to total wealth? And thus, how urgent is the diversification [3] process?
- What tax liability could arise if the position is reduced?
- How much liquidity is needed now and over the next several years?
- Are there charitable, estate, or family wealth objectives that should influence the plan?
The answers may point to a combination of strategies. An investor who needs near-term liquidity may prioritize sales. An executive subject to trading windows may need a longer implementation schedule. Someone with philanthropic goals may be able to diversify part of the position through charitable giving. The plan should reflect the investor’s full circumstances, not only the stock’s outlook.
1. Gradual Diversification
Reducing a position over several tax years can help manage both concentration risk and the timing of capital gains. A staged sale plan sets a disciplined pace for diversification instead of relying on short-term market calls.
This can be especially useful for executives with trading restrictions or investors who want to avoid one large taxable event. The schedule can also be coordinated with expected income, charitable contributions, portfolio losses, and upcoming liquidity needs.
2. Tax-loss Harvesting
Tax-loss harvesting can create flexibility when appreciated shares are sold. Subject to the investor’s tax circumstances and applicable rules, actively realizing losses on other positions in the portfolio may allow them to offset realized gains on the concentrated stock position.
The strongest programs are systematic rather than reactive. They look for loss-harvesting opportunities throughout the year and reinvest proceeds in a way that preserves the intended market exposure. Along with achieving portfolio diversification, this may improve after-tax outcomes and allow a concentrated position to be reduced more efficiently over time.
3. Direct Indexing
Direct indexing provides exposure to a market index through a portfolio of individual securities rather than a single fund. Because the investor owns the underlying holdings, losses may be harvested security by security while the portfolio remains broadly invested.
For an investor with substantial unrealized gains, this can create a recurring source of tax losses that may help offset gains from future sales of the concentrated stock. Direct indexing can also be customized around existing holdings, restrictions, and tax budgets. It is not appropriate in every case, and the benefits depend on portfolio size, market conditions, fees, and the availability of losses.
4. Option-based Strategies [4]
Some investors are not ready or able to sell. In those situations, options may help reshape the risk of the position and potentially generate income, while ownership is maintained. Common approaches include:
- Covered calls, which generate additional income through premiums, in exchange for giving up certain upside on the stock,
- Protective puts, which can establish a floor below the current share price. This strategy has the objective of downside protection,
- Collars, which combine downside protection with a covered call that limits some upside, and/or
- Customized option overlays designed around a target level of protection, income, or participation
Options can be complex and may involve premiums, opportunity costs, liquidity considerations, counterparty exposure, and specific tax treatment. They should be evaluated carefully with investment and tax professionals before implementation but can help to achieve a thoughtful exit from the concentrated position.
5. Family Wealth Planning & Charitable Donations
Highly appreciated stock can also support charitable and legacy goals. Donating shares directly to a qualified charity may allow an investor to avoid realizing the embedded capital gain and may provide a charitable deduction, subject to applicable rules and limitations.
For American taxpayers, Donor-advised funds and certain charitable trusts may offer additional flexibility where giving is part of a broader diversification plan. Gifting shares to family members or transferring assets through estate planning structures may also be relevant, but the tax consequences can vary significantly by jurisdiction, residency, relationship, and structure.
A Coordinated Strategy is Usually More Effective
There is rarely one perfect solution. In practice, a concentrated stock plan may combine:
- Staged sales across multiple years;
- Ongoing tax-loss harvesting;
- Direct indexing;
- Option-based hedging;
- Charitable giving; and/or
- Estate and family wealth transfer planning
The value comes from coordination and assessing suitability to an investor’s unique circumstances. Investment decisions affect taxes. Tax decisions affect cash flow. Charitable and estate planning can influence which shares should be sold, gifted, or retained. When these decisions are considered together, investors can move toward a more resilient portfolio without losing sight of after-tax wealth and long-term priorities.
The Key Takeaway
A concentrated holding may have played an important role in creating wealth, but it does not need to define the investor’s future. A structured plan can reduce reliance on one company while managing taxes, liquidity, and legacy objectives in a deliberate way.
How LEO Wealth can help?
LEO Wealth helps clients evaluate concentrated stock positions within the context of their complete financial lives. Our approach brings together investment management, tax-aware portfolio strategy, retirement and cash-flow planning, and estate and legacy considerations. The goal is to create a practical path toward diversification while preserving flexibility and keeping long-term objectives at the center of the plan.
References:
- Charles Schwab, “3 Strategies for Highly Appreciated Stocks”
- Fidelity, “How to Diversify Concentrated Stock Positions”
- Fidelity, “Do You Own Too Much of One Investment?”
- BlackRock, “Concentrated Stock”
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Tax services provided are separate from the Securities or Advisory services offered through Leo Wealth Americas. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
[1] Concentration risk is the risk of amplified losses that may occur from having a large portion of your holdings in a particular investment, asset class or market segment relative to your overall portfolio.
[2] Tax-loss harvesting is a strategy of selling securities at a loss to offset a capital gains tax liability. It is typically used to limit the recognition of short-term capital gains, which are normally taxed at higher federal income tax rates than long-term capital gains, though it is also used for long-term capital gains.
[3] Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
[4] Options are not suitable for all investors. There are risks involved in any option strategy. Individuals should not enter into option transactions until they have read and understood the option disclosure document titled “Characteristics and Risks of Standardized Options,” which outlines the purposes and risks of option transactions. This booklet is available from your Financial Advisor or at http://www.theocc.com/about/publications/character-risks.jsp. Supporting documentation of claims will be supplied upon request.
