With today’s hottest companies having seen meteoric rises in the past few years, you may find yourself heavily invested in one. Or your portfolio may have heavy exposure to a single stock because you received shares as part of your company’s compensation package or an inheritance.
In any case, such scenarios can lead to what’s called a concentrated stock position. Generally speaking, this is when a single stock accounts for 10 percent to 20 percent of your portfolio. Some experts even say 5 percent puts you in this territory.
Nonetheless, being heavily concentrated in a single stock can raise some issues. It can leave you open to major risk, volatility, lack of diversification, and tax burdens.
However, there are some strategic ways to manage the risks associated with concentrated stock positions. So let’s take a closer look.
Sell Portions Over Time
If allowed, you can sell portions of your appreciated stock over time to minimize the impact of capital gains taxes. And you can use the proceeds to reinvest in a more diversified portfolio.
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This may be the simplest approach, especially if your concentrated shares are held in a tax-deferred account such as an IRA. That’s because selling shares within these accounts won’t trigger taxable events. Taxes come into play only when you make withdrawals from these accounts.
Donate to Charity
You can reduce your concentration in these stocks by donating shares directly to an IRS-approved charity. These donations would generally be deductible up to 30 percent of your adjusted gross income (AGI).
You can either donate shares directly to specific charitable organizations or to a donor-advised fund (DAF). With a DAF, you get an immediate tax deduction and can make recommendations as to which charities to donate to in the future.
Moreover, you may also consider a charitable remainder trust (CRT). A CRT is a type of irrevocable trust designed to provide income to yourself or beneficiaries for a set period of time. Afterward, the remaining assets are donated to charity.
Many individuals with concentrated stock positions use CRTs to diversify and minimize tax burdens.
As the trust creator or grantor, you can transfer appreciated stock to the CRT. Because the CRT itself is a tax-exempt entity, it can sell these appreciated shares without triggering any immediate capital gains taxes for the donor.
The proceeds from the sale can be reinvested to diversify. And you can receive regular payments from the trust, which typically range from 5 percent to 8 percent of the trust’s value. At the end of the trust’s term, the remaining assets go to your designated charitable organizations.
However, you’d owe income taxes on the regular payments from the trust. This includes capital gains taxes from the original stock positions.
If you’re addressing concentrated stock positions via charitable contributions, you should seek the guidance of a qualified tax adviser. This is especially important considering recent changes to tax law.
For those in the 37 percent federal income tax bracket, the value of their charitable deduction benefits is now capped at 35 percent. And to benefit from an itemized charitable deduction, you’d need to clear a 0.5 percent of AGI floor.
Exchange Funds
More advanced and high-net-worth investors may consider exchange funds. In this scenario, multiple investors transfer their concentrated stocks to a pooled investment vehicle called an exchange fund. Each receives a proportional share of the fund in return. Because you’re not actually selling the stocks, there’s no capital gain tax involved.
When you leave the fund, you receive a basket of securities instead of cash. But you must meet a seven-year holding period to get this stash of securities.
Moreover, you can hold your exchange fund shares and leave them to heirs. They would benefit from a step-up in basis. This means they could avoid capital gains taxes altogether if they were to sell the shares immediately.
The Bottom Line
There are many ways you can find yourself with concentrated stock positions. This is when a single stock makes up 5 percent to 20 percent, or more, of your portfolio. And it may leave your portfolio open to major risk. If the stock or sector it’s in faces a major downturn, your portfolio could suffer a heavy blow. But selling all your appreciated shares can trigger a major tax bill.
However, there are ways to manage concentrated positions. You can consider selling portions of your shares over time to stretch out the tax burden, strategic charitable giving strategies, or exchange funds if you’re an accredited investor. In any case, managing concentrated stock options can be highly complex. And some strategies may backfire if not carried out properly. This is why it’s important to consult a qualified financial and tax adviser when managing concentrated positions.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
