Most concentrated positions aren't chosen. They build up. A few years of RSUs you didn't get round to selling, an ESPP you kept buying into, options that finally paid off. One day you look at your accounts and a third of everything you own is a single company, usually the one that also pays your salary.
That's a good problem in the sense that the stock did well. It's still a problem. This article covers why a big single-stock position is riskier than it feels, what selling it actually costs in tax (often less than people assume), and the tools for bringing it down when an outright sale isn't the right answer.
Why one stock is riskier than it feels
It's easy to look at a company you know well, maybe one you work for, and feel that it's safer than "the market." The long-run data says the opposite.
Hendrik Bessembinder's 2018 study of every US-listed stock from 1926 onwards found that more than half of individual stocks returned less over their lifetimes than one-month Treasury bills. The stock market's entire net gain over that period came from about 4% of companies. A J.P. Morgan study of the Russell 3000 found that roughly 40% of stocks since 1980 suffered a fall of 70% or more from their peak and never recovered.
The market as a whole does well because a small number of huge winners carry it. Any one stock, even a good company, has a real chance of being one of the many that don't.
If the stock is your employer's, there's a second layer. The same bad news that sinks the share price tends to arrive with hiring freezes, smaller bonuses and layoffs. Your income and your savings take the hit together, at exactly the moment you'd want one of them to hold up.
How much is too much?
There's no rule in the tax code, but a common guideline among planners is to keep any single stock under about 10% of your net worth. Some people reasonably go higher, especially when the rest of their finances are solid and the position is in a large, stable company. Above 20% or so, most would agree you're making a significant bet whether you meant to or not.
A quick test helps. If you had the same amount in cash today, would you put it all into this one stock? If the answer's no, the only thing keeping you in is the decision to sell, and usually the tax that comes with it.
What selling really costs
The tax bill is the main reason people hold on, so it's worth putting real numbers on it.
Take a married couple with $150,000 of wages who own $600,000 of one stock with a cost basis of $150,000. Selling it all is a $450,000 long-term gain.
Sell it all this year. The gain is taxed at 15% federally, $67,500. Their income also crosses the $250,000 threshold for the 3.8% net investment income tax, which adds $13,300. Total: about $80,800, ignoring state tax.
Sell a third each year for three years. Each year's $150,000 gain costs $22,500 at 15%, plus $1,900 of net investment income tax because less of each year's income is above the threshold. Total over three years: about $73,200.
Spreading it out saves about $7,600. That's real money, but it's under 1.3% of the position. Compare it with what a 30% fall in the share price would cost: $180,000. The tax is a known cost. The risk of holding isn't, and it's usually the bigger number.
Two things about that example are worth noticing. First, the tax rate on a big sale isn't dramatically worse than on a small one, because long-term gains don't climb through brackets as steeply as wages do. Second, you pay tax on the gain only, not the whole position. Selling $600,000 of stock here leaves the couple with about $519,000 to reinvest, spread across thousands of companies instead of one.
None of this means you should sell everything tomorrow. It means the tax is a cost to be managed, not a reason to stay concentrated indefinitely.
Ways to bring it down
Sell on a schedule
The simplest approach is usually the best. Decide on a target, say getting below 10% of your net worth, and sell a set amount each quarter or each year until you're there. A schedule takes the emotion out of it. You won't be tempted to wait for a better price, and you won't panic-sell after a bad week.
Within that schedule, a few details help with tax:
Pick your lots. If you bought or received shares at different times, tell your broker to sell specific lots rather than using the default. Selling the highest-basis shares first means less gain per dollar sold. Shares held a year or less are short-term and taxed as ordinary income, so let those age past the one-year mark if you can.
Sell new shares at vesting. RSU shares sold on the day they vest carry no extra tax, because their basis equals their value. Selling every new vest stops the position growing while you work down the old shares. Our RSU article explains why.
Use low-income years. A gap between jobs, an early retirement or a sabbatical can drop your income enough that more of your gains fall into the 0% long-term bracket, or at least stay below the net investment income tax threshold.
Offset gains with losses
Capital losses elsewhere in your portfolio offset gains dollar for dollar. Selling investments that are down to realize the loss, while staying invested in something similar, is called tax-loss harvesting. Some investors go further with direct indexing: holding the individual stocks of an index rather than a fund, which creates far more opportunities to harvest losses that can then absorb gains from the concentrated stock. Just watch the wash-sale rule if you buy back the same or a substantially identical investment within 30 days.
Give shares instead of cash
If you give to charity, give appreciated shares instead of writing checks. Donating stock you've held for more than a year to a public charity or a donor-advised fund generally lets you deduct its full market value if you itemize, and neither you nor the charity pays tax on the gain. The deduction for appreciated stock is limited to 30% of your adjusted gross income in a year, with five years to carry forward any excess. From 2026, itemized charitable deductions only count to the extent they exceed 0.5% of your income, which trims the benefit slightly.
You can also give shares to family. The recipient takes your cost basis, so the gain doesn't disappear, but it's taxed at their rate when they sell. For an adult child in the 0% long-term bracket, that can mean little or no tax. Watch the kiddie tax for children under 19, or under 24 if they're full-time students, and remember the annual gift tax exclusion is $19,000 per recipient in 2026.
Hold until death, deliberately
Inherited shares get a "step-up" in basis to their value at death, which wipes out the built-in gain. For someone in their eighties with a low-basis position, holding can genuinely be the right tax answer. It only makes sense if they can afford the risk of the stock falling in the meantime, and it's a choice that should be made deliberately, not by default.
Charitable remainder trusts
A charitable remainder trust can sell a concentrated position without paying tax on the gain at the time of sale. You put the shares into the trust, the trust sells and diversifies, and it pays you an income for life or a set number of years. Whatever's left at the end goes to charity. You get a partial income tax deduction up front, and the gain is taxed gradually as part of the payments you receive. It's irrevocable and has setup costs, so it suits people who were planning a large charitable gift anyway.
Exchange funds
An exchange fund pools concentrated positions from many investors into one partnership. You contribute your shares and receive a stake in a diversified portfolio, without selling, so no tax is due. The catch: you generally have to stay in for seven years to keep the tax deferral, the fund usually has to hold some real estate or similar assets, fees can be meaningful, and they're typically only open to investors with $5 million or more in investments. Your original low basis carries over, so the tax is deferred, not avoided.
Hedging with options
Buying put options sets a floor under the price, and a "collar," which pairs a bought put with a sold call, can do it for little upfront cost by giving up some of the upside. Hedges protect against a crash without triggering a sale. They come with real limits, though. Collars set too tight can count as a "constructive sale" and trigger the tax anyway, and many companies forbid employees from hedging their own stock at all. Check your company's insider trading policy before going near this.
If you're an insider
Directors, officers and many other employees can only trade during open windows and may be barred from trading when they know something the market doesn't. A Rule 10b5-1 plan gets round that by setting up a schedule of sales in advance, while you don't have material non-public information. The plan then sells on its own, even during blackout periods.
Since 2023, new plans come with a cooling-off period before the first trade: for directors and officers, the later of 90 days or two business days after the next quarterly report, up to 120 days, and 30 days for other employees. Set one up well before you need the money. Officers and other affiliates may also have to follow Rule 144's volume limits and filing requirements, which your company's legal team will know about.
What to actually do
Start by working out what share of your net worth the stock really is, including unvested grants and anything in your 401(k). If it's well above 10%, set a target and a timeline.
For most people the plan is simple: sell new shares as they vest, sell a set amount of the old ones each year starting with the highest-basis lots, and give shares rather than cash to any charities you support. If the stock is in your 401(k), look at net unrealized appreciation before you roll anything over. Exchange funds, trusts and hedges are worth considering for very large positions, but they're additions to a selling plan, not substitutes for one.
And try not to let the tax decide for you. Paying 15% or 20% on a gain feels painful. Watching a stock lose half its value, with no plan to have sold any of it, feels a lot worse.