You held your RSUs and waited through the IPO lockup. And now – finally – you’re sitting on a concentrated stock position worth real money.
The same concentration that built your wealth can destroy it.
When 50%, 60%, or 70% of your net worth sits in a single stock, you’re not investing anymore. You’re gambling – on one company, one earnings call, one product cycle, one piece of news that could drop the price 30% before you’ve had your morning coffee.
The hard part isn’t knowing you should diversify. The hard part is figuring out how to do it without handing a third of your gains straight to the IRS.
This guide covers exactly that.
What is a concentrated stock position?
A concentrated stock position exists when a single stock makes up more than 5% to 20% of your total investable assets.
For most financial planners, that’s the threshold. Cross it, and you have meaningful concentration risk.
For tech employees, that threshold gets crossed constantly – and often without much notice. RSU vests accumulate year after year. Option exercises after an IPO create a sudden, large holding. ESPP purchases add to the pile every offering period.
Before you know it, you have a portfolio that looks less like an investment strategy and more like a single bet.
Why concentration risk is worse than you think
Consider the math.
If 60% of your net worth is in one stock and that stock drops 40% – which happens to good companies regularly – your total net worth falls by 24% from that position alone. Your other investments don’t compensate. They just reduce the damage slightly.
| Stock Decline | 20% Concentration | 40% Concentration | 60% Concentration |
|---|---|---|---|
| Minus 20% | -4% to portfolio | -8% to portfolio | -12% to portfolio |
| Minus 40% | -8% to portoflio | -16% to portfolio | -24% to portfolio |
| Minus 60% | -12% to portfolio | -24% to portfolio | -36% to portfolio |
That table deserves a moment of reflection.
Now layer in the fact that if you’re a tech employee, your salary comes from the same company as your concentrated position. If the company has a bad year, you don’t just lose portfolio value. You also face layoffs, frozen compensation, and option grants worth a fraction of what you expected.
That’s the part most people don’t see coming until it’s too late.
7 concentrated stock position strategies that actually work
None of these strategies are magic. Each one involves tradeoffs. But together, they represent the full toolkit for managing single-stock concentration risk – including the New York City tax reality that makes this especially high-stakes for tech employees here.
Strategy 1: Staged systematic selling
The simplest, most effective place to start.
Instead of selling your entire position at once – and triggering one enormous tax bill – you sell a fixed amount on a predetermined schedule over multiple years.
Why it matters: Shares held longer than one year qualify for long-term capital gains treatment. That’s a maximum federal rate of 20%, versus up to 37% for short-term gains. In New York City, state and city taxes stack on top of that, making every percentage point of rate reduction worth real dollars.
Spreading sales across multiple tax years also helps you stay within lower brackets each year instead of spiking into the highest rate in a single filing.
Example: You hold 10,000 RSU shares worth $500,000. Instead of selling everything now, you sell roughly $133,000 per year over three years – same destination, meaningfully lower tax cost.
Strategy 2: Tax-loss harvesting to offset gains
Next, if you hold other investments sitting at a loss, those losses can cancel out the gains from selling your concentrated position – dollar for dollar.
The IRS allows capital losses to offset capital gains in full. Losses beyond your gains can offset up to $3,000 in ordinary income per year, with the rest carried forward indefinitely.
One often-overlooked angle for tech employees: If you hold cryptocurrency alongside your equity, crypto is treated as property – not a security – under current IRS rules. That means the wash sale rule doesn’t apply to crypto losses. You can harvest those losses and immediately repurchase. That flexibility doesn’t exist with stocks.
With stocks and securities, short-term losses offset short-term gains first, and long-term losses offset long-term gains first. The sequencing matters for your final tax outcome – worth reviewing with an advisor before executing.
Strategy 3: A 10b5-1 trading plan
The third method is a 10b5-1 plan. If you’re a corporate insider, or if your company’s trading windows make it feel nearly impossible to ever sell, a Rule 10b5-1 trading plan removes that friction entirely.
You establish the plan at a time when you don’t possess material non-public information. After that, trades execute automatically on schedule – during blackout periods included – with no further action required from you.
No timing the market. No guessing whether you’re allowed to trade. No emotional second-guessing.
Tax note: A 10b5-1 plan doesn’t change how your sales are taxed. Short-term versus long-term treatment still applies based on holding period. What it changes is your ability to execute a systematic selling strategy without the legal and logistical friction that normally gets in the way.
Strategy 4: Charitable giving with appreciated stock
If giving is already part of your financial picture, this strategy is one of the most powerful examples of doing well by doing good.
When you donate appreciated shares directly to a charity or a donor-advised fund (DAF), two things happen simultaneously: you receive a charitable deduction for the full fair market value of the shares, and you never pay capital gains tax on the appreciation.
Compare that to the alternative – selling first, paying taxes, then donating the reduced proceeds:
| Approach | Share Value | Capital Gains Tax | Charitable Deduction |
|---|---|---|---|
| Sell, then donate cash | $100,000 | $~33,000 paid | $67,000 |
| Donate shares directly | $100,000 | $0 paid | $100,000 |
The difference compounds when you use a donor-advised fund. You can donate a large block of appreciated stock in a single year – capturing the full deduction now – and then recommend grants to specific charities over time at your own pace. It’s flexibility built into generosity.
Strategy 5: Covered call writing
After DAFs is covered call writing. This strategy isn’t for everyone. But for tech employees who hold a large position and feel psychologically unable to simply sell, covered calls offer a structured path.
You sell call options on shares you already own. In exchange, you collect premium income. If the stock rises above the strike price, your shares are called away – effectively a sale at a price you agreed to in advance. If the stock stays below the strike, you keep the premium and repeat the process.
Who this fits: Employees at public companies who own shares outright (not unexercised options) and are comfortable with options mechanics. It’s less appropriate for shares approaching the one-year holding threshold, since writing covered calls can affect your long-term capital gains qualification period.
Tax on premiums received is short-term by default. If your shares get called away, the sale price factors in the premium collected.
Strategy 6: Protective puts and equity collars
The next technique uses stock options, too. A protective put is exactly what it sounds like: you buy the right to sell your shares at a specified price, no matter how far the stock falls. It’s insurance against a catastrophic decline.
An equity collar combines that protection with a covered call. You buy the put to protect your downside, and sell the call to help pay for the put premium. The result is a position with a defined floor and a capped ceiling – meaningful protection, often at little or no net cost.
Collars are especially valuable when you can’t sell yet. Lock-up periods, blackout windows, or a cost basis so low that the tax bill feels prohibitive – all of these create situations where you hold concentration you’d rather not have, and collars let you manage the risk while you wait for a better window.
Critical tax note: Certain collar configurations can trigger a “constructive sale” under IRC Section 1259, creating an immediate taxable event even without selling. A collar that’s too tight falls into this territory. Get qualified tax guidance before executing any options strategy on a low-basis position.
Strategy 7: Exchange funds
This is the sophisticated end of the toolkit – and it’s surprisingly elegant and takes at least seven years.
An exchange fund is a private investment partnership where multiple investors contribute their different concentrated stock positions. In return, each investor receives a diversified interest in the pooled fund – without selling a single share and without triggering capital gains.
You get diversification and defer the tax because you contribute your shares instead of selling them.
The requirements are real, though:
- Typically requires an accredited investor with $1 million or more to contribute
- Shares must remain in the fund for at least seven years to avoid the contribution being treated as a taxable sale
- The fund must hold at least 20% in illiquid assets like real estate to qualify under IRS partnership rules
Exchange funds work best for founders and senior executives with very large, very low-basis positions and a long time horizon. If you need liquidity in the next few years, this isn’t the right tool.
How to choose the right concentrated stock position strategy
No single strategy fits every situation. Here’s a practical framework for narrowing your options:
| Your Situation | Strategy to Prioritize |
|---|---|
| Low cost basis | Avoid outright sale; explore collars, DAFs, or exchange funds |
| Locked up post-IPO | Protective puts to limit downside while waiting |
| Charitable intent | Donor advised fund with appreciated shares |
| Blackout restricted | 10b5-1 plan |
| Large position & long horizon | Exchange fund |
| Starting point for most | Staged selling & tax-loss harvesting |
| NYC residency | All tax-efficient strategies become more valuable given combined rates |
Most tech employees start with staged selling and tax-loss harvesting. It’s accessible, immediate, and effective.
The more specialized strategies – collars, exchange funds, DAFs – become worth exploring as the position size grows and the cost basis drops. A lower basis means the tax cost of selling is higher, which raises the relative value of every alternative approach.
The risk nobody talks about: working where you invest
This is the piece that gets overlooked most often.
If you hold 50% of your net worth in your employer’s stock, you don’t just have concentration risk. You have correlated risk too. The same bad year that drops the stock price also triggers the layoffs. The same quarter that decimates your investment also eliminates the bonus that was going to offset it.
Most investment frameworks suggest no more than 5% to 10% of a portfolio in any single stock. For tech employees compensated heavily in equity, exceeding that threshold isn’t unusual. It’s almost inevitable.
That’s not a reason for panic. It’s a reason for a plan.
Frequently asked questions about concentrated stock position strategies
What percentage of a portfolio is considered a concentrated stock position?
Most financial planners define a concentrated position as one stock representing more than 5% to 20% of total investable assets. The appropriate threshold for your situation depends on the stock’s volatility, your overall financial picture, and whether you also rely on that same company for your income.
How do I reduce a concentrated stock position without paying a huge tax bill?
The most tax-efficient strategies for diversifying out of a concentrated position include staged selling across multiple tax years, tax-loss harvesting to offset realized gains, donating appreciated shares directly to a donor-advised fund, and equity collars to protect downside while deferring a sale. Each strategy addresses the core tension between reducing risk and managing the tax cost of doing so.
What is the best strategy for a concentrated stock position after an IPO?
After a lock-up period expires, a staged selling plan combined with a 10b5-1 trading plan is usually the most practical approach. It lets you reduce concentration systematically, navigate trading window restrictions, and spread your tax liability across multiple years rather than absorbing it all at once.
Do concentrated stock position strategies work differently in New York City?
Yes – materially so. The combined New York State and New York City income tax rates on top of federal capital gains taxes can push your effective rate above 50% on short-term gains. That makes every tax-efficient strategy proportionally more valuable for NYC residents. The difference between a well-structured exit plan and an unplanned sale can be worth hundreds of thousands of dollars in after-tax proceeds.
Should I sell all my company stock at once?
Rarely. An outright, immediate sale simplifies the math, but it also maximizes your tax bill in a single year and often pushes a large portion of your gain into the highest rate brackets. A systematic approach almost always produces better after-tax results, even if it takes longer to achieve full diversification.
The decision you keep putting off is costing you
Every month you spend fully concentrated in a single stock is a month your financial future depends on one company’s ability to perform, survive, and stay free of the kind of news that can cut a stock price in half overnight.
You don’t need to sell everything. Nor do you need to abandon conviction in a company you believe in.
You need a plan that reduces the risk intelligently – in a way that respects the tax reality of where you live and what you’ve built.
That’s the work we do. We create concentrated stock position strategies to reduce your stress.
Schedule a free consultation with Fortrove Partners →
Fortrove Partners is a fee-only financial advisory firm serving tech employees and executives in New York City. This article is for informational purposes only and does not constitute tax or investment advice. Please consult a qualified tax and a CERTIFIED FINANCIAL PLANNER® professional before implementing any strategy discussed here.