How to De-Risk a Concentrated Stock Position: 3 Steps for HNW Investors

You didn’t set out to build a risky portfolio. In fact, for many high-net-worth investors, an overconcentrated stock position isn’t the result of a hasty decision. Instead, many times it’s the byproduct of loyalty, legacy, or long-term success.

Maybe it started with your employer’s equity compensation plan—RSUs (restricted stock units), stock options, or ESPPs (employee stock purchase plans). Perhaps it’s the company you helped build. Maybe it’s stock you inherited from a parent or grandparent, which can carry both sentimental value and family legacy. Or perhaps it’s a single stock that’s outperformed everything else in your portfolio for so long, it felt unthinkable to touch it. There’s pride, identity, and sometimes a deep emotional attachment wrapped into that ticker symbol.

But here’s the hard truth: concentration creates risk.

What once felt like a smart (or sentimental) decision can quietly become a liability, leaving you overexposed to volatility, tax headaches, and even liquidity constraints. Whether it’s the market punishing a quarterly earnings miss or new regulations shaking up the industry, having too much of your wealth tied to one stock means your financial future may hinge on factors outside your control.

In this article, we’ll explore practical, tax-conscious strategies to help you unwind overconcentration without unraveling your long-term plan.

Concentrated Stock, Concentrated Risk

In general, no single stock should represent more than 10% of your overall portfolio. Once you cross that threshold, even a modest dip in the stock’s value can have an outsized effect on your financial security.

That threshold isn't just a technical benchmark. It’s a tipping point where your investment strategy starts to hinge on the fate of a single company. That’s where concentration risk becomes a real threat to your long-term financial stability.

And overconcentration doesn’t just increase your financial exposure. It can distort your decision-making, complicate your liquidity, and entangle your tax picture. These risks often hide in plain sight, especially when a stock has performed well or is emotionally tied to your career or legacy.

Here’s what to watch for:

• Volatility exposure: A single disappointing earnings call or regulatory shift can meaningfully impact your net worth.
• Restricted liquidity: Trading windows, pre-clearance rules, or internal policies may limit your ability to act when needed.
• Tax inefficiencies: Large unrealized gains can deter action, but delaying diversification can magnify future tax liabilities.

Understanding these risks isn’t about creating fear. It’s about giving yourself the clarity and tools to make proactive, rational decisions that align with your broader financial picture.

So where do you start? Before you can take action, you need to understand just how concentrated your position is and what that means for your overall risk exposure.

Step 1: Assess Your Exposure and Overall Risk

The first step in de-risking a concentrated position is clarity. That means looking beyond the stock's current performance and evaluating its true weight in your portfolio and the risk it introduces.

Key actions to take:

• Calculate your exposure: Determine what percentage of your investable assets is tied up in the stock. If it’s more than 10%, that’s a red flag.
• Analyze correlation: Understand how your concentrated position behaves relative to your other holdings. If the stock moves in sync with your broader portfolio or the broader market, you may have less diversification than you think.
• Understand the implications of inaction: Consider what would happen if the stock lost 20–30% of its value. Could your broader financial goals still be met?
• Run scenario models: A financial advisor can simulate various outcomes—including best- and worst-case scenarios—to help quantify the risk and determine when and how to act.

Having a clear, data-informed picture of your current risk profile is what makes strategic planning possible. Then, once you’ve done the work to understand your exposure, the natural next question is: how do you reduce it without incurring unnecessary tax consequences?

That’s where a structured, tax-smart approach becomes essential.

Step 2: Use the H.O.P.E.S. Framework

Once you understand the scope of your concentration risk, the next step is to begin transitioning to a more balanced portfolio without triggering an avoidable (and potentially large) tax burden.

At Allworth, we like to leverage the H.O.P.E.S. framework with our high-net-worth clients who are looking to unwind concentrated positions since it was designed specifically for this challenge:

• Hold Strategically: Sometimes, the best first move is patience. Waiting for a more favorable tax year, aligning with income-lowering events (like retirement), or planning around known liquidity windows can yield tax advantages.
• Options Strategies: Tools like protective puts, covered calls, or collars can offer downside protection or generate income while you plan your exit. Direct indexing can be leveraged to reduce tax liability.
• Philanthropy: Gifting appreciated stock to a donor-advised fund (DAF) or charitable remainder trust (CRT) can help you reduce capital gains exposure while supporting causes that matter to you.
• Exchange Funds: For investors with $5 million or more in investable assets, exchange funds offer a compelling solution. These allow you to pool your stock with others in a fund structure, gaining diversification while deferring taxes.
• Sell with Intent: Phasing sales over multiple tax years, harvesting losses in other parts of your portfolio, or using charitable deductions can all help minimize the tax impact of reducing your position.

Each H.O.P.E.S. strategy can stand alone or be layered with others. The key is coordination: aligning your sell-down plan with your tax, philanthropic, and liquidity goals for maximum impact.

(If you own a significant amount of a single stock and would like to learn more about this five-path framework, be sure to watch Advanced Tactics for Concentrated Stock Positions, an on-demand webinar from our team of experts.)

Step 3: Reframe Your Investment Objectives

Once you’ve taken steps to unwind your concentrated position, the next challenge—and opportunity—is deciding how to reinvest the proceeds. And what you do can have a lasting impact on your future income, risk exposure, and legacy.

In short: the real strategy begins once you've diversified. A diversified portfolio is more than a defensive move; it’s your chance to define a more resilient, future-facing investment strategy.

Consider:

• Redefining your asset allocation: With more flexibility and liquidity, revisit your ideal mix of equities, fixed income, real estate, and alternatives. Align your investments with updated time horizons, income needs, and growth goals.
• Embracing tax diversification: Spread assets across taxable, tax-deferred, and tax-free accounts to create more levers for managing future distributions and legacy planning.
• Planning for transitions: Whether you’re heading into retirement, exiting a business, or anticipating a major lifestyle shift, your investment strategy should reflect your evolving priorities.

This is also a moment to reconsider your philosophy: Do you want to optimize for total return, income, legacy, or lifestyle stability? With a clean slate, you can architect a portfolio that reflects your next chapter, not just your past success.

Final Thoughts

You've worked hard, stayed disciplined, and have more than likely made smart decisions to get where you are. But if your portfolio is heavily tied to a single stock, even a legacy position can quietly become a liability. That’s not a failure. It’s a sign you’ve done well and now have an opportunity to be even more strategic.

And remember, unwinding a concentrated stock position isn’t about walking away from what’s worked. It’s about protecting what you’ve built and repositioning for long-term portfolio optimization. From thoughtful tax planning to values-aligned giving and risk-aware reinvestment, a forward-thinking, coordinated strategy can help ensure that your wealth continues to work for you.

If you're ready to explore your options, please reach out to our team. Our in-house fiduciary advisors and specialists can leverage our advanced suite of investment offerings to help you build a tax efficient unwinding plan that aligns with your wealth goals.

The information presented is for educational purposes only and is not intended to be a comprehensive analysis of the topics discussed. It should not be interpreted as personalized investment advice or relied upon as such.

Allworth Financial, LP (“Allworth”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of the information presented. While efforts are made to ensure the information’s accuracy, it is subject to change without notice. Allworth conducts a reasonable inquiry to determine that information provided by third party sources is reasonable, but cannot guarantee its accuracy or completeness. Opinions expressed are also subject to change without notice and should not be construed as investment advice.

The information is not intended to convey any implicit or explicit guarantee or sense of assurance that, if followed, any investment strategies referenced will produce a positive or desired outcome. All investments involve risk, including the potential loss of principal. There can be no assurance that any investment strategy or decision will achieve its intended objectives or result in a positive return. It is important to carefully consider your investment goals, risk tolerance, and seek professional advice before making any investment decisions.