Managing a Concentrated Stock Position: A Framework for Executives and Founders

A concentrated stock position, generally any single holding above 10 to 20 percent of your investable assets, exposes your financial plan to risks the market does not pay you to take. The main strategies for managing one are staged sales under a written plan, 10b5-1 trading plans for insiders, exchange funds, hedging with options collars, charitable transfers, and tax-managed diversification around the position. The right combination depends on your cost basis, insider status, liquidity needs, charitable intent, and how much of your future is already tied to the company through salary and unvested equity.

Why is a concentrated position a problem?

Diversification is often called the only free lunch in investing because it can reduce risk without a corresponding reduction in expected return. A single stock carries company-specific risk, the possibility that one firm stumbles for reasons unrelated to the broad market, and that risk is not compensated. Holding one stock instead of a diversified portfolio means accepting a much wider range of outcomes for roughly the same expected return.

The danger is easy to underestimate after a long run of gains. Executives and founders often hold their stock precisely because it has performed well, and that experience builds conviction at the moment risk is highest. The position also tends to compound with other exposures: salary, bonus, unvested restricted stock units, and options all depend on the same company. When the stock falls, income and net worth can fall together.

There is no universal threshold, but many advisers begin paying close attention when a single position exceeds 10 percent of investable assets, and treat anything above 25 percent as a planning priority. The question is not whether the company is good. It is whether your family's goals survive the scenarios where you are wrong.

Why don't people just sell?

Three forces keep concentrated positions in place: taxes, restrictions, and attachment. A founder with near-zero basis faces federal long-term capital gains tax of up to 20 percent plus the 3.8 percent net investment income tax, and state tax on top. Insiders face trading windows, blackout periods, and ownership guidelines. And many holders feel loyalty to the company that built their wealth, or fear of regret if the stock keeps rising after they sell.

A sound framework takes all three seriously. Taxes are a real cost, but they are a known, bounded cost; concentration risk is unbounded. The practical goal is rarely to sell everything at once. It is to set a target exposure, choose the most tax-efficient and compliant path to get there, and remove emotion from the execution.

What is the framework?

At Atlatl Advisers, we approach concentrated positions in four steps. First, quantify: measure the position against total net worth, including unvested equity and the value of future compensation tied to the company. Second, set a destination: a target weight consistent with the family's Liquidity, Lifetime, and Legacy goals, not a market opinion about the stock. Third, select tools: match sales, hedges, funds, and charitable vehicles to lots, basis, and constraints. Fourth, automate: put the plan in writing and let rules, not headlines, drive execution.

The tools below are the building blocks. Most plans use two or three of them in combination.

Staged sales: the default starting point

For most holders, the simplest and most reliable strategy is a written schedule of sales over one to several years. Selling in stages spreads gains across tax years, which can help manage bracket exposure and the 3.8 percent net investment income tax, and it diversifies the timing risk of exiting at a single price. Lot selection matters: selling the highest-basis lots first reduces the tax cost of early sales, while low-basis lots may be earmarked for charitable gifts or held for a step-up in basis at death where that fits the estate plan.

A schedule also serves a behavioral purpose. Deciding once, in advance, is easier than deciding repeatedly under the influence of recent price moves. The most common failure mode we see is not a bad plan; it is a paused plan.

How do 10b5-1 plans work for insiders?

Rule 10b5-1 trading plans allow corporate insiders to sell on a predetermined schedule with an affirmative defense against insider trading liability, provided the plan was adopted in good faith while the insider had no material nonpublic information. The SEC tightened the rules in amendments adopted in December 2022 and effective February 27, 2023. Officers and directors must now observe a cooling-off period before the first trade: the later of 90 days after adoption or two business days after the company files its financial results for the quarter in which the plan was adopted, capped at 120 days (SEC, Rule 10b5-1 amendments, 2022). Other persons face a 30-day cooling-off period, and the rules restrict overlapping plans and generally limit single-trade plans to one per 12-month period.

For executives, a well-built 10b5-1 plan is usually the backbone of diversification. It converts good intentions into scheduled execution and keeps sales running through blackout windows. Plan design choices, such as fixed shares versus price-contingent tranches and plan duration, should be coordinated with counsel and the company's trading policy.

What is an exchange fund?

An exchange fund (sometimes called a swap fund) is a private partnership in which multiple investors each contribute a concentrated stock position and receive a proportional interest in the pooled, diversified portfolio. Under Section 721 of the tax code, the contribution is generally not a taxable event, so the investor achieves diversification without an immediate capital gains tax. To preserve that treatment, the fund must avoid classification as an investment company, which in practice requires holding at least 20 percent of assets in qualifying illiquid investments such as real estate, and investors must generally remain in the fund for seven years to receive a diversified basket of securities at redemption without triggering the deferred gain early.

The trade-offs are real. Seven years is a long lockup, fees are meaningful, the diversified basket carries over your original low basis (the tax is deferred, not eliminated), and you give up control over the underlying portfolio. Exchange funds tend to fit holders with very low basis, no near-term liquidity need, and no charitable plans for the shares. They are a deferral tool, not an exit.

Hedging with collars and variable prepaid forwards

An equity collar pairs a purchased put option, which sets a floor under the stock, with a sold call option, which caps the upside and finances some or all of the put's cost. A collar can protect a position you cannot or will not sell yet, for example during a lockup or while waiting for long-term holding periods to mature. Variable prepaid forward contracts go further, delivering upfront cash (often 75 to 90 percent of the position's value) in exchange for delivery of a variable number of shares in the future.

Hedging has costs and traps. Collars cap participation in further gains, can create taxable events when options are settled, and must respect the tax straddle rules, which can suspend holding periods and defer losses. Insiders need company and counsel approval, hedging may be prohibited by company policy, and public disclosure may be required. The constructive sale rules of Section 1259 also limit how completely you can hedge without the IRS treating the hedge as a sale. These strategies belong in the hands of holders with specific, dated reasons to defer a sale, not as a permanent substitute for diversification.

Charitable strategies: giving the problem away

For families with charitable intent, appreciated stock held more than one year is often the single best asset to give. A gift to a donor-advised fund or public charity generally produces a fair-market-value income tax deduction, subject to a limit of 30 percent of adjusted gross income for appreciated securities, and the embedded capital gain is never taxed. A charitable remainder trust can take the strategy further: the trust sells the stock without immediate capital gains tax, reinvests the full proceeds in a diversified portfolio, and pays the donor an income stream for life or a term of years, with the remainder passing to charity.

These tools convert a tax problem into philanthropic capacity. They are covered in more depth in our pieces on donor-advised funds versus private foundations and on charitable remainder trusts.

Can direct indexing help around the position?

Yes, in two ways. First, a direct indexing portfolio funded with cash can be built to exclude the concentrated stock and underweight its sector, so the rest of the portfolio does not double down on the same risk. Second, systematic tax-loss harvesting in that portfolio generates realized losses over time, and those losses can offset gains from the staged sale of the concentrated position. The harvesting does not eliminate the tax on the big position, but it can meaningfully reduce the net cost of each year's sales.

This pairing, scheduled sales plus a loss-harvesting completion portfolio, is one of the most practical combinations available because it requires no lockups, no derivatives, and no charitable commitment.

A hypothetical worked example

Consider a hypothetical executive, married filing jointly, holding $8 million of company stock with a $1 million cost basis, representing 60 percent of a $13.3 million portfolio. The target is to bring the position below 15 percent, roughly $2 million, over four years.

The plan might look like this: a 10b5-1 plan sells $1.25 million of stock per year for four years, prioritizing the highest-basis lots, for $5 million of total sales. Gifts of $500,000 of the lowest-basis shares to a donor-advised fund over two years fund a decade of family giving and remove the largest embedded gains. A $4 million direct indexing portfolio, funded with sale proceeds and excluding the company and its closest peers, harvests losses to offset a portion of each year's realized gains. If the early sales realize roughly $4.1 million of long-term gain before offsets, the federal tax at 23.8 percent (20 percent capital gains plus 3.8 percent net investment income tax) would be approximately $975,000 before harvested losses and the charitable deduction reduce it. The family ends with a diversified portfolio, a funded giving program, and a remaining stake sized so that any single-company outcome no longer threatens the plan. This example is hypothetical and ignores state taxes and price changes.

Key numbers

Frequently asked questions

How much company stock is too much?There is no single answer, but many advisers treat 10 percent of investable assets as the point to start planning and 25 percent or more as a priority. Include unvested equity and the dependence of your salary on the same company when you measure.

Does an exchange fund eliminate capital gains tax?No. It defers the tax. Your original basis carries into the fund and then into the diversified basket you receive after roughly seven years, so gain is recognized when you eventually sell those securities.

Can I hedge my stock instead of selling it?Often yes, through a collar or prepaid variable forward, but hedges cap upside, carry costs, raise straddle and constructive sale tax issues, and may be restricted or prohibited for insiders by company policy.

What if I believe strongly in the company?Conviction and concentration are separate decisions. Many plans retain a meaningful, deliberately sized stake while diversifying the rest, so that being wrong is survivable.

Is it better to gift shares or cash to charity?For long-term appreciated shares, gifting stock is usually more efficient than gifting cash, because the deduction is based on fair market value and the embedded gain escapes capital gains tax.

Do these strategies work for pre-IPO or private company stock?Some do. 83(b) elections, QSBS planning, and pre-sale charitable transfers matter most before liquidity. See our articles on equity compensation and on planning a business sale.