Too much of your net worth in one stock? Five ways to reduce the risk, and the trade-offs of each.

A single stock that has grown into a large share of your net worth is usually a sign that something went right: a career, a company you built, or an early bet that paid off. It is also the most common source of risk we see in otherwise well-run balance sheets. The good news is that there is more than one way to reduce it, and selling everything at once is rarely the only option.

Start with the question that matters

The useful question is not whether the stock will go up. It is what happens to your plan if it falls by half and stays there. If the answer is that retirement, a home purchase, or a child's education is at risk, the position is too large for its role, regardless of how good the company is.

Five tools, each with a trade-off

1. Staged sales across tax years

Selling in planned tranches over two or more calendar years can keep more of the gain in lower capital gains brackets and below the 3.8% net investment income tax thresholds where possible. The trade-off is time: risk comes down gradually, not all at once.

2. Pairing sales with harvested losses

Losses realized elsewhere in a taxable portfolio can offset gains from selling the concentrated stock. A portfolio built deliberately to generate harvestable losses over time, often through direct indexing, can make each year's diversification sale cheaper. Harvesting generally defers tax rather than eliminating it.

3. Gifting appreciated shares

Giving long-held shares to a public charity or donor-advised fund generally lets you deduct their market value and avoid the capital gain entirely. Gifts to family members in lower brackets can shift the gain to them, subject to gift tax rules and the kiddie tax for younger children.

4. Hedging with options

Protective puts, collars, and prepaid variable forwards can limit downside while you hold the shares. They cost money or give up upside, they have their own tax rules, and company insiders often face trading windows and pre-clearance requirements.

5. Exchange funds

An exchange fund pools concentrated positions from many investors into a diversified partnership without an immediate taxable sale. Typical structures require a holding period of about seven years, qualified purchaser or accredited investor status, and accept only certain stocks. Fees and illiquidity are the trade-offs.

Combine, do not choose

In practice, the best result often comes from layering: an immediate hedge or partial sale to cut the worst-case risk, charitable gifts of the lowest-basis shares, and a multi-year selling schedule paired with loss harvesting. Each piece should be coordinated with your CPA so that the tax projection matches the plan.

Questions to bring to your advisor

• What percentage of my net worth is in this one stock, including vested and unvested equity?
• What is my cost basis by lot, and which lots are short-term?
• Am I subject to trading windows, lockups, or Rule 144?
• What would selling 25% this year and 25% next year cost after tax?
• Do I plan to give to charity in the next few years anyway?