Sometimes, a great investment creates a new problem: what do you do with all those gains?
We’ve seen clients who bought an individual stock years ago, watched it perform exceptionally well and now hold a position worth significantly more than what they originally paid. That’s a good problem to have—but it can also leave investors feeling stuck. Selling may trigger a sizable capital gains tax bill, while holding on can leave too much of their wealth tied to the fortunes of a single company.
However, a caveat: stock picking can be extremely difficult for individual investors to consistently achieve, often making a broadly diversified portfolio a more appropriate long term strategy. There’s also a natural tendency to remember the stocks that paid off while forgetting the ones that didn’t. We tend to replay our investing highlight reel—the big winners and smart calls—while the losses quietly fade from memory. That selective memory can make stock picking seem more successful than it really is and encourage investors to take on more risk than they realize.
While we don’t endorse trying to pick individual stocks, concentrated positions can happen for plenty of reasons, from a successful investment to employer stock or an inheritance.
How to Manage Capital Gains from a Concentrated Stock Position
The first step is to do the math. We have clients who bought Nvidia in 2008 for just a few thousand dollars and watched that investment grow to a couple million. Cashing out a massive single-stock gain in a single tax year triggers significant capital gains taxes, which many investors struggle to stomach psychologically. But if you turned a few thousand dollars into $1.6 million after taxes, that’s still the financial equivalent of winning the lottery.
The challenge is that once you’ve seen $2 million on your statement, $1.6 million can suddenly feel like a loss rather than an extraordinary gain. Sometimes, selling the stock, paying the tax and removing the uncertainty is the simplest path to peace of mind. If $1.6 million, combined with the rest of your portfolio, is enough to sustain the retirement you want, the decision may become much clearer. You could sell, diversify and reduce the risk of having so much of your wealth tied to a single company.
Working with a financial professional can help you evaluate your options and determine which strategy best fits your goals. Investors holding concentrated positions can utilize vehicles like exchange funds or separately managed accounts to diversify their holdings without immediate liquidation. Each approach comes with its own benefits, drawbacks, costs and tax considerations, making it important to understand the trade-offs before deciding how to proceed.
Related: Should I Retire Early?
Why Diversification Matters with Large Single-Stock Holdings
You also need to consider how the investment fits into your portfolio as a whole. If it represents only a small portion of your overall net worth, the concentration may not pose a significant risk. Conversely, having half of your total net worth tied up in a single stock exposes your retirement security to immense risk outside of your control. Concentration can be a powerful way to build wealth, but it can also put that wealth at risk.
At some point, the goal may need to shift from How can I make every dollar I possibly can? to How can I protect the wealth I’ve worked so hard to build? That change in mindset can make diversification feel less like giving up potential gains and more like protecting your financial future.
Reduce Capital Gains Taxes by Selling Stock Over Time
Another straightforward strategy is to gradually reduce a concentrated position over time rather than selling it all at once. Selling off a large position across two separate calendar years can help keep your income within a lower capital gains tax bracket and save money. Spreading out sales can also help you diversify while managing the tax impact along the way.
As you approach retirement, the goal is to avoid having the success or failure of a single company determine what the rest of your financial life looks like.
Financial planning is one of the few areas where almost everyone believes they’re good at it. Someone who bought Nvidia in 2008 likely wasn’t anticipating the rise of artificial intelligence or predicting that the company would become an AI powerhouse. Sometimes, an extraordinary investment outcome involves a healthy dose of luck. The odds are still stacked against investors who try to consistently identify individual stock winners, which is why diversification remains such an important strategy. If you held two million dollars in pure cash, you would most likely never risk it all on a single company, which is why diversification makes sense.
That same logic applies when a successful stock has grown far beyond your original investment. If you invested $50,000 and watched it grow to $1 million, it can be tempting to think that losing it all would only mean losing the $50,000 you initially put in. In reality, you now have $1 million at risk.
Thinking you are “playing with house money” is a dangerous psychological trap that ignores the total value your portfolio holdings today.
How to Diversify a Concentrated Stock Position Without Selling Everything
There are also practical ways to reduce a concentrated position without immediately selling everything. One simple step is to turn off dividend reinvestment and use those cash payments to buy other investments rather than adding more shares to the stock you already own. It’s also important to look for hidden overlap in your portfolio. If you own Nvidia individually and also hold an S&P 500 fund, for example, you already have additional exposure to Nvidia through that fund.
Charitable giving can provide another opportunity to reduce concentration. If philanthropy is already part of your financial plan, donating appreciated shares instead of cash may allow you to support the causes you care about while potentially reducing the tax impact of selling the stock yourself.
Use these strategies not just to manage risk, but to create more peace of mind. There’s nothing peaceful about having half of your wealth riding on the fortunes of a single company. A smart financial strategy often comes down to minimizing future regret: Would you regret missing out on some additional upside more, or watching a significant portion of your wealth disappear? Regret is a powerful emotion, and thinking through that trade-off can help you make decisions you’ll be comfortable living with.
Ready to feel more peace of mind?
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