You’ve Built a Concentrated Position. Now What?

Maybe it happened slowly: years of stock grants at the hospital system you’ve worked for since residency. Maybe it happened all at once. You sold the business you built and now hold one big tax bill waiting to happen.

Either way, you’ve ended up in the same place a lot of successful business owners, physicians, and high-income professionals eventually land. Most of your wealth is tied up in one asset.

That’s called a concentrated position, and it’s one of the more common (and more misunderstood) problems in personal finance.

It doesn’t feel like a problem. It feels like success. You bet on something, and it paid off.

But from a planning standpoint, a concentrated position creates real risk. Your financial future is now riding on the performance of one stock, one company, one industry.

The good news? You have options. The tricky part? There’s no one right answer, and the obvious move (“Just sell it!”) isn’t always the right one once taxes enter the picture.

I’m Dave Alison, President of Wealth Management and Founding Partner at Prosperity Capital Advisors (Prosperity). Let’s walk through what your options actually look like.

Why This Is Harder Than It Seems

If you ask five people what to do with capital gains sitting in a concentrated position, you’ll get five different answers. And none of them will be wrong exactly.

That’s because the right move depends on so many personal factors:

• Tax bracket
• Timeline
• Charitable goals
• Risk tolerance
• How attached you are (emotionally or professionally) to the asset itself

Selling everything today solves the concentration problem but can trigger a tax bill large enough to make you wince.

Doing nothing avoids the tax hit but leaves you exposed if that one holding has a bad year … or decade.

Most people land somewhere in between. Thankfully, the in-between is where good planning happens.

Here’s a look at some of the more common approaches:

1. Hold and Monitor

Sometimes the right move is no move yet. If you believe in the company long-term and can stomach some volatility, holding may make sense.

But “hold and forget” is different from “hold and monitor.” The second means someone’s actually keeping an eye on how much risk you’re carrying and flagging it when your comfort level and your exposure start to diverge.

2. Give Strategically

If charitable giving is already part of your life, donating appreciated shares to a donor-advised fund can do double duty:

• You may avoid capital gains tax on the shares you give.
• You get a deduction that can offset gains you realize elsewhere.

In plain terms, it can let you reduce concentration risk while giving generously. The tax code works in your favor instead of against you.

3. Sell and Diversify on Purpose

Selling a portion of a concentrated position and reinvesting into a diversified portfolio is often the most straightforward path.

Yes, it can trigger long-term capital gains tax. But it doesn’t have to happen all at once. Staging sales over multiple years can help manage the tax bracket impact while steadily reducing your exposure to any single holding.

4. Hedge Without Selling

Maybe you don’t want to sell outright (perhaps for tax reasons, perhaps for personal ones). There are strategies designed to reduce concentration risk without triggering an immediate sale.

These strategies typically use options-based approaches to create more diversified exposure while you keep the original position intact.

5. Diversify Gradually, With Tax in Mind

There are also longer-term approaches built just for unwinding a concentrated position over time. That is, you sell in a disciplined, tax-aware way rather than in one lump sum. And you use ongoing tax-loss harvesting to help offset the gains along the way.

Think of it as diversification on a slow drip instead of a firehose.

6. Trade Concentration for Diversification via an Exchange Fund

In certain cases, you can contribute appreciated stock to a diversified exchange fund and receive an ownership stake in a much broader basket of securities. This tack defers the capital gains tax that a straight sale would trigger.

Exchange funds come with lock-up periods and eligibility requirements, so they’re not for everyone. But they’re worth knowing about if a single stock is doing most of the driving in your portfolio.

None of These Are Mutually Exclusive

This might come as a surprise: You don’t have to pick one lane.

The most effective plans often combine two or three of these approaches (a little selling here, a charitable gift there, a hedge in the meantime), timed around your income, your goals, and what’s happening in your life.

A business owner two years from retirement and a physician mid-career with steadily vesting stock will want radically different mixes, even if they’re staring down the exact same problem.

Where To Go From Here

I’ve covered the strategies most people encounter first. More advanced approaches are out there for more complex situations. Those go beyond the scope of one article.

Here’s the most important thing to remember. A concentrated position isn’t something to panic about, but it also isn’t something to ignore. It’s something to plan around.

If you’re sitting on one … company stock, a recent business sale, years of accumulated shares … discuss your situation before deciding on a next step.

Find an advisor at Prosperity Capital Advisors to talk through what a concentration review would look like for your situation. You can also contact us online. We’re happy to hash it out with you.