When people talk about concentrated stock positions, the story often begins with a headline-worthy event: a company goes public and suddenly its employees are holding a large block of stock. While that scenario certainly happens, concentrated stock positions often develop quietly over years—or even decades—through a combination of personal investment choices, market performance, and life events.
When a single stock grows to represent a large percentage of your portfolio, it can create both risks and opportunities that require thoughtful planning. Let’s look at some of the most common ways concentrated positions arise, along with strategies for managing them effectively.
How Concentrated Stock Positions Happen
The “Forever Hold” Dividend Stock
Some investors hold onto blue-chip dividend-paying stocks for decades, living off the income they generate. This was once a common retirement strategy—buy shares in a company like AT&T or Exxon, collect the dividends, and never sell. Over time, that stock can become a disproportionate share of your portfolio, leaving you vulnerable if the company’s fortunes change.
The Beloved Stock That Kept Growing
Sometimes it’s a company you admire—Apple, for example—that you buy and hold because you believe in its future. Years later, your investment has grown so much it’s now 20% or more of your total portfolio. Selling means realizing large capital gains, so many investors opt to hold, increasing their exposure to company-specific risk.
Inherited Shares
When you inherit stock, you generally receive a step-up in basis, meaning you can sell right away with little or no tax impact. But some people hold onto inherited shares for sentimental reasons. While keeping a small portion can make sense, letting a large inherited position dominate your portfolio can create unnecessary risk.
Employer Stock Accumulated Over Time
Even without an IPO windfall, long-term employees sometimes accumulate significant shares through stock purchase plans or bonuses. If the stock performs well, that position can grow faster than the rest of their portfolio.
Why Concentration Can Be Risky
When one stock makes up a significant percentage of your portfolio, it creates what’s called single-stock risk. Unlike a diversified portfolio—where performance is spread across different companies, sectors, and even countries—a concentrated position ties a large portion of your wealth to the fate of a single company.
The danger is that no matter how strong or stable a business may seem, individual companies can face unexpected setbacks. Management changes, new competitors, industry disruption, regulatory challenges, or economic downturns can all cause stock prices to fall—sometimes dramatically and without warning. For investors heavily concentrated in such a stock, the losses can be devastating—and often unrecoverable without decades to rebuild.
It’s also important to consider opportunity cost. While your concentrated stock is tied up in one company, you might miss out on gains from other sectors or regions that are performing well. Over time, a lack of diversification can result in lower overall returns and a more volatile investment ride.
The good news: a concentrated stock position doesn’t have to be an all-or-nothing problem. Whether you acquired the stock through years of dividend reinvestment, a favorite company that skyrocketed in value, or an inheritance, there are strategies to reduce risk, manage taxes, and keep your portfolio aligned with your goals.
Strategies for Managing Concentrated Positions
Build Around It
If, for example, you own a large-cap U.S. stock, you can structure the rest of your portfolio to diversify into areas like small-cap stocks, international equities, and fixed income. This helps offset some risk, even if you’re not ready to sell the concentrated position.
Gradual Sales with Tax Sensitivity
You can often chip away at a position over multiple tax years. Analyzing your income and capital gains exposure can help determine how much of your stock to sell each year without bumping you into a higher tax bracket. This approach reduces risk while managing your tax bill.
Charitable Gifting
If you have philanthropic goals, donating appreciated stock—either directly to a charity or into a donor-advised fund—can be a tax-smart way to reduce concentration. You avoid paying capital gains tax, the charity can sell the stock tax-free, and you receive a charitable deduction.
Managing Inherited Stock
If you’ve inherited shares, consider selling soon after receiving them to take advantage of the step-up in basis. If you wish to keep some for sentimental reasons, keep the percentage small so the position doesn’t distort your portfolio balance.
Dividend Reinvestment Decisions
Reinvesting dividends in the same stock increases your concentration. Redirecting dividends into cash or other investments can help prevent the position from continuing to grow.
Estate Planning Considerations
Sometimes, the right move is to hold. For example, if a client is of advanced age with a highly appreciated stock, selling could trigger a large tax bill with little time to reinvest the proceeds. In these cases, it may be better to hold the stock so heirs receive a step-up in basis. This decision should weigh age, portfolio percentage, risk tolerance, and estate goals.
The Bottom Line
Concentrated stock positions don’t just happen in IPO headlines—they’re a common reality for many investors. Whether the shares were acquired through decades of dividend reinvestment, a long-term favorite company, or an inheritance, they require a plan that balances risk, tax implications, and personal goals.
At Curio Wealth, we help clients evaluate their concentration in the context of their total financial picture. Sometimes that means reducing the position gradually; other times, it means leveraging charitable giving; and in some instances, it means holding the stock for strategic estate planning purposes.
If you have a stock position that’s grown larger than you intended, let’s talk about the best strategy for you—one that’s tax-efficient, risk-conscious, and aligned with your life goals.
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