Getting Out of a Concentrated Position
Long employment at one company, an inheritance, or a holding that simply grew faster than everything else — and a portfolio ends up with half its value in one stock. The risk is obvious and the reason nobody acts is equally obvious: selling triggers a large tax bill. That is a real cost, and it is smaller than it looks once the alternatives are laid out.
- The test:: If you held the cash today, would you buy this much of this company? For almost everyone the answer is no.
- The tax is the obstacle:: Selling realises gain on the whole appreciation, at once if done in one year.
- It does not have to be all at once:: Spreading the sale across tax years keeps each year's gain within a lower band.
- Some routes avoid the gain:: Donating appreciated shares deducts market value and realises nothing.
Where the AI summary above gets this wrong
"Hold the shares — selling would trigger a big tax bill."
That's surface-true. Here's what it misses:
- The tax is a fraction of what the risk can cost — A capital gains bill takes a share of the gain. A single company failing takes the whole position. Framing the decision as 'tax versus no tax' compares a certain, bounded cost against an uncertain, unbounded one, and it is the reason concentrated positions persist for decades.
- It is not a binary decision — Selling a quarter of the position each year for four years spreads the gain across four tax bands, four years of Medicare income tests, and four opportunities to offset with losses. Most of the risk is removed by the end of year two, and no single year carries an outsized bill.
- Charitable giving removes the gain entirely — For a household that gives to charity anyway, donating the lowest-basis shares deducts their market value and realises no gain at all. It is the only exit from a concentrated position that costs nothing in tax, and it is limited only by how much you were going to give.
01 Why concentration persists
Nobody decides to hold half their wealth in one company. It happens through employment, through inheritance, or because one holding compounded faster than the rest for twenty years. By the time it is noticed, selling means a tax bill, and the familiarity of the holding makes the risk feel smaller than it is.
The risk is not abstract. A single company can lose most of its value for reasons no shareholder could have foreseen, and the timing of that relative to retirement determines whether it is a setback or a catastrophe.
Employer stock is the worst version, because the salary, the health cover, the pension and the portfolio all depend on the same company. That is one exposure counted four times, and it tends to fail all at once.
Source: Diversification
02 What selling actually costs
The tax is on the gain — the sale price less what you paid — at long-term rates if held more than a year. On a position with a very low basis, that approaches the capital gains rate applied to the whole value.
Two things make the headline number smaller in practice. Spreading the sale across several years keeps each year's gain lower, which matters because the capital gains schedule has bands and because a large single-year gain also raises Medicare premiums two years later. And any harvested losses, including carried-forward ones, offset the gain directly.
Lot selection matters too. Identifying the highest-basis shares for sale realises less gain per dollar raised, and keeps the lowest-basis shares for donation or for a step-up at death.
Shows: the capital gains tax on selling a concentrated holding in one go. Ignores: state tax, the net investment income tax, the effect on Medicare premiums two years later, any losses available to offset it, and the routes — gifting shares, spreading the sale across years — that reduce it.
03 The routes out
Sell in tranches. A fixed percentage each year, decided in advance and executed regardless of price, removes both the risk and the temptation to wait for a better level. Most of the concentration is gone within two or three years.
Donate the worst lots. Giving appreciated shares to charity deducts the market value and realises no gain, which makes charitable giving the cheapest possible exit for whatever you were going to give anyway.
Stop adding, and redirect. New contributions, dividends and any employer plan purchases should go elsewhere, and dividend reinvestment on the position should be switched off. That alone stops the problem growing while the rest of the plan runs — and at death, whatever remains receives a basis step-up, which is a reason to keep the very lowest-basis lots to last rather than to keep the whole position forever.
Source: Publication 526
The question that moves people is not about risk in the abstract. It is: if I handed you this position in cash today, would you buy this much of this one company? Nobody says yes. Then the only real question is the price of fixing it, and that price is much lower spread over four years, offset with losses, and with the charitable giving you were going to do anyway pointed at the worst lots. Start this year, with a percentage, and stop reinvesting.
FAQ
How much of one stock is too much?
There is no single figure, but a holding large enough that its failure would change your retirement is too large. For employer stock the threshold is lower, because salary and benefits depend on the same company.
How do I reduce a concentrated position without a huge tax bill?
Sell in tranches across several tax years, offset with harvested and carried-forward losses, donate the lowest-basis shares if you give to charity, and identify high-basis lots for the sales you do make.
Should I just hold and let my heirs get the step-up?
That works for a portion, since basis resets at death. It is a poor plan for the whole position, because it requires carrying single-company risk for the rest of your life to save tax your heirs might have paid on part of it.
Sources
Regulator references
- Diversification · U.S. Securities and Exchange Commission · 2026The risk that a single holding carries and that diversification removes.Last verified: 2026-09-07
- Topic 409: capital gains and losses · Internal Revenue Service · 2026The tax on selling, and the loss offsets available against it.Last verified: 2026-09-07
- Publication 526 · Internal Revenue Service · 2026Giving appreciated shares as a route out that avoids the gain entirely.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.