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Highly Appreciated Concentrated Stock Positions

July 12, 2018

Having a highly appreciated concentrated stock position is a blessing and a curse. Often this stock is a client’s largest asset, making the decision to keep the position or to diversify out of it that more challenging. What should you consider? Are there better ways of diversifying out of your stock? How do you make the tough decision to sell? These are challenging questions that we hope to help you with in this document.

Decision to Diversify:

I’m sure you’ve heard the age old saying, “don’t keep all of your eggs in one basket.” Why? Many of the wealthiest individuals in this country made their wealth by having a significant portion of their net worth in one company. Look at Bill Gates as a perfect example. Had he diversified himself out of Microsoft when the company went public in the 1986, he would most likely not be the billionaire that he is today. As successful and wealthy as Bill Gates is, had he diversified himself at the end of 1999, he would not have had to wait until 2016 before seeing his stock start to show improvement to his total net worth (see the chart below).

The decision to diversify is a tough one. You’ve made a lot of money, but it’s not really yours until you lock in that profit. You would hate to see your stock retreat in value but you’d kick yourself if the stock price continues to rise. Then there is the issue of Uncle Sam taking a big chunk of your profits. What should an investor do?

If You Are Confident Your Stock Will Go Up in Value:

Employees of a firm often know far more about the company than the Wall Street Analysts covering the stock. If you are very confident that your company stock is going to go up in value, keep it! You may want to read below and have other alternative strategies waiting in the wings, just in case you are wrong. Why sell a high performing investment if it’s doing well for you and the prospects of it continuing to do well far outweigh the risks of selling it?

Not Sure Which Direction Your Stock’s Price Will Go:

If you are unsure which direction the price of your highly appreciated, concentrated stock might go, one strategy comes to mind.

Strategies to Sell and Diversify:

There are several strategies to sell your highly appreciated stock, each having different advantages and disadvantages. We have highlighted three of the most popular strategies here for your reading pleasure.

Conclusion:

The decision to diversify yourself from a highly concentrated, highly appreciated stock should not be taken lightly. Tough decisions must be made about potential taxes and opportunity costs. Sell your stock too soon and it could cost you taxes today, plus missed opportunity of the stock growing in value. Hold on to the stock too long, and years of hard work could be lost by a downward spiral in your stock price, all because you were worried about taxes.

No one has tomorrow’s newspaper. Making this decision should incorporate many factors. Bringing together your professional team, including your accountant, estate attorney, and your Polaris Greystone advisor is imperative to making the most informed decision possible.

As always, I welcome your questions and comments, and I encourage you to meet with your Polaris Greystone wealth advisor to keep up to date with our service offering.

 

 

 

  

 

   Sincerely,
   Jeffrey J. Powell
   Managing Partner, Chief Investment Officer

 

 

 

Polaris Greystone Financial Group, LLC is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only, are based on data we believe to be accurate at the time of writing, and are subject to change without notice. This material does not take into account your particular investment objectives, financial situation or needs, is not intended as a recommendation to purchase or sell any security, and is not intended as individual or specific advice. Investing involves risk and possible loss of principal capital. Diversification does not ensure a profit or protect against a loss. Advisory services are only offered to clients or prospective clients where Polaris Greystone Financial Group, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Polaris Greystone Financial Group, LLC unless a client service agreement is in place.

Categories: Polaris Greystone Financial Group, LLC.

Tags: Capital Gains, Disciplined Approach, Disciplined Investing, Dividends, Inheritance, Investing, Investments, Market, market performance, Markets, successful investing, financial legacy, Financial Advisor, Assets, Transferring Assets, Gift Splitting

 

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