CONCENTRATED EQUITY POSITION


There are a myriad of reasons why you might find yourself holding a concentrated equity position — inheritance, sale of your business, part of your executive compensation, or just through shrewd investing.

Regardless of the circumstance, it’s not always best to leave all your eggs in one basket. If the stock in which you're concentrated were to decline significantly, the impact on your wealth and the financial fortunes of your family could be devastating.  Diversification is the solution but doing so involves managing the tax implications associated with reallocating your assets.

Identify Your CONCERNS

Identifying your concerns is the first step in managing a concentrated equity position. Some examples include:

  • A need to meet certain financial goals or obligations
  • A desire to decrease risk in your portfolio
  • Concerns about the tax consequences of selling equities
  • Whether or not you wish to make charitable donations
  • Whether or not you have an emotional tie to the security
  • Any company-imposed retention requirements

Once concerns are addressed and priorities set, you can move forward with a diversification strategy that is right for you.

Picking a Plan

There are three main ways to address a concentrated position, each with its own pros and cons.  A single solution is rare, and your overall approach will depend on the specific details of the investment and your complete financial situation. What is most critical is that you combine the practical knowledge of the various diversification strategies with a thorough understanding of your own needs and concerns.

  1. Sell and Diversify
  2. Charitable Giving
  3. Diversify Through Borrowing or Employing Derivatives