Concentrated Stock

A Paradox of Success

Concentrated investments are usually a sign that something worked.

A company succeeded. A career paid off. A conviction proved itself over time. But success creates complexity.  When one stock grows large enough to take control of your portfolio, it begins to limit your focus and your flexibility. If you’ve ever put the stock ticker into your mobile app for one-touch quotes or real-time updates, you know what I’m talking about…

The biggest thing that limits most people from taking control of concentration is taxes.

A stock appreciates for years, maybe decades. The cost basis becomes folklore among friends, family, maybe even your advisor. Owning the position starts to carry a sense of pride. And selling means a tax bill that feels impossible to justify. So, the position (and the risk) stays.

Wealth Creation versus Preservation

The counterpunch to managing concentrated stock is that history is full of examples of where concentration has been the thing that built great fortunes. Gates, Bezos, Zuckerberg, Jobs, Walton…these are household names because of the wealth they created. But wealth creation and wealth preservation are different skill sets. The investors who made their fortune through concentration rarely kept it that way. They diversified, planned, and created flexibility long before the market forced them to.

That side of the story doesn’t have the same seduction, so it doesn’t get told…but this is why family offices exist.

Trading Risk for Flexibility

In my experience, investors know the risks of a concentrated stock position. They just get stuck trying to figure out how to manage it without creating a tax event. But it doesn’t require liquidation. You have choices, and there are strategies that make this possible.  The bad news about choice is that too many choices can create overwhelm – I get that.

I like the HOPES framework to help organize the main ways to address concentration risk.

Hold - Retain exposure where it still fits your plan but define limits.

Overlay - Add derivative-based strategies to your existing concentrated stock position to manage risk or create liquidity without triggering immediate taxes.

Philanthropy - Gift appreciated shares to a charitable trust, donor-advised fund, or foundation to create an immediate tax deduction for you and an impact for the causes you care about.

Exchange - Contribute stock to a pooled fund to gain diversification while deferring capital gains.

Sell - Structured, gradual sales help manage risk and taxes while freeing up capital for new opportunities.

Each path in the HOPES framework helps investors trade risk for flexibility.

The keyword is trade. As they say in investing, “There is no free lunch.” When it comes to managing concentrated stock, every decision carries a cost – in taxes, timing, or opportunity.

Knowledge is power. And when you understand these trade-offs, you’ll feel more confident about how to manage concentrated stock risk in a way that is best for you, your life, and your goals.

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Rob Edwards is a Managing Director and Senior PIM^® Portfolio Manager at Edwards Asset Management, serving high-net-worth families across Florida. He helps clients preserve, grow, and enjoy their wealth by navigating the complex financial and personal decisions that come with wealth. Rob has been featured in national outlets including Forbes,

TheStreet.com, and Kiplinger, establishing him as a trusted voice for those seeking thoughtful wealth strategies. To learn more, visit RobEdwardsWealth.com.

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Wells Fargo Advisors Financial Network does not provide legal or tax advice.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Edwards Asset Management is a separate entity from WFAFN.