For tech executives in Atlanta who’ve spent years accumulating equity, a concentrated stock position is one of the most common and consequential financial challenges to work through. You have real wealth tied to one company; the bigger that position grows, the more your financial future depends on what happens to that single stock.
The Danger of Concentration Risk
Stock options, RSUs, and equity grants stack up over time so that for many executives, a single company represents the majority of their net worth, which can create significant vulnerabilities.
Research from J.P. Morgan Asset Management found that more than 40% of all companies that were ever in the Russell 3000 Index experienced a catastrophic stock price loss, defined as a 70% decline from peak levels that was not recovered. Two-thirds of individual stocks underperformed the Russell 3000 over their lifetime.
For technology stocks specifically, the catastrophic loss rate runs even higher than the broader market average; the same research found that 57% of tech sector stocks experienced that kind of permanent decline.
Another layer of risk: your income and portfolio are tied to the same company, meaning that a bad quarter, a leadership change, or a shift in the competitive landscape could impact your compensation and your investments at the same time.
The Case for Diversification
Spreading your wealth across asset classes, sectors, and positions reduces the impact any single company can have on your financial life. A diversified portfolio doesn’t completely eliminate risk, but it means a bad quarter at your employer, a product failure, or a broader sector selloff doesn’t have the power to derail everything you’ve built.
Most executives know this, but hesitate to act because selling a large, appreciated position can trigger significant capital gains taxes. The concern is legitimate, but it can be worth examining whether deferring taxes is really saving money or just allowing concentration risk to compound.
Selling a large, appreciated position can trigger federal long-term capital gains rates of up to 20%, plus the 3.8% net investment income tax, plus any applicable state taxes. For a position worth several million dollars, that’s a significant check to write.
But staying concentrated to avoid taxes often means accepting ongoing risk in exchange for tax deferral; risk that may only increase as the position grows larger relative to your total net worth.
Several strategic approaches can help you find a middle ground: paying a reasonable amount of tax in exchange for a portfolio that supports the life you’re building.
Four Strategic Ways to Address Both Concentration Risk and Taxes
The right strategy for diversifying out of a concentrated position depends on the size of the position, your tax situation, your timeline, and what you’re trying to accomplish. Often, executives we work with leverage a combination of these approaches rather than implementing one in isolation:
- Systematic selling with a 10b5-1 plan. A Rule 10b5-1 trading plan lets you set up pre-scheduled, formula-driven trades during an open window, before you’re in possession of material nonpublic information. Once the plan is in place and the mandatory cooling-off period has passed (currently 90 days for most Section 16 officers and directors under 2022 SEC amendments), trades execute automatically. You spread the tax liability over time, build a consistent diversification cadence, and get a documented legal defense against insider trading concerns.
- Exchange funds. If you hold a large, low-basis position in a publicly traded stock, an exchange fund lets you contribute your shares into a pooled vehicle alongside other investors doing the same with different concentrated positions. After a required holding period of at least seven years, you receive back a diversified basket of securities rather than your original concentrated position, with no immediate capital gains tax on the contribution.
- Charitable giving strategies. If philanthropy is part of your bigger financial picture, donating appreciated stock to a donor-advised fund (DAF) or charitable remainder trust (CRT) lets you remove shares from your portfolio, avoid capital gains tax on the contributed amount, and generate a charitable deduction. A CRT also adds an income stream back to you over a defined period.
- Tax-loss harvesting and direct indexing. If you’re selling shares over time, offsetting gains with losses harvested elsewhere in your portfolio can reduce your net tax bill. Direct indexing, which means owning individual stocks in a broad index rather than a fund, makes this approach more precise and scalable.
The Impact of Concentrated Stock on Your Grow, Protect, Give, Live Framework
At SignatureFD, we map every financial decision through our Grow, Protect, Give, Live framework to build plans that are truly aligned with the life you want, both now and in the future.
As part of the Grow pillar, we work with executives in Atlanta on stock option planning, tax-managed stock strategy, values-aligned stock strategy, and strategic allocation to help them answer the question, “How do I grow and compound wealth in a way that advances my goals?”
The GPGL framework exists because financial decisions can’t be made in isolation. Selling stock affects your tax plan, your estate plan, your philanthropic giving, and your cash flow all at once.
If you’re currently sitting on a concentrated position and want to think through your options with a team that understands how concentration risk can impact your full financial picture, let’s talk.
