Concentrated Equity Strategies

BALANCING REWARDS AND RISKS OF OWNING A LAGE AMOUNT OF EQUITY IN A SINGLE COMPANY. GETTING CHOICE AND CONTROL OVER WHEN AND HOW MUCH TO PAY IN TAXES.

“I need a plan to minimize the tax impact of my concentrated equity position.”

Benefits of a Concentrated Equity Strategy

Owners usually want to know how to achieve three things.

Less risk

Unwinding a large stock position to reduce the risk.

Lower taxes

More choice and control over taxes.

Confidence

Able to maintain the right amount of risk for your unique situation.

Concentrated Equity Owners are Often of Two Minds

How much risk is right for me?
It is most important to provide financial

Safety

You may have built your wealth by owning shares in a single company. But, as time passes, you want a plan to minimize taxes, reduce these risks and still have a chance at significant growth.

Red tie feeling happy
Concentrated Equity Ownership Strategies
Yet I know this may be a great financial

Opportunity

On the other hand, you may feel confident in the growth prospects for your company. We can help with strategies to give an owner upside potential and still maintain some control over taxes and other risks.

Some benefits of a concentrated equity strategy:

Reduce the Risk through Diversification

Single equities are volatile. By owning multiple companies, the risk of a single equity is reduced substantially. Research shows, you can achieve significant risk reduction by owning as few as 16 different companies.

For owners of concentrated stock, we take a completely customized approach. We find equities that move differently than the company you own. We want low correlation. As share prices move around, we optimize the portfolio for your real-life financial plan.1

Get More Choice and Control over Taxes

With a concentrated equity position, taxes are often a big obstacle to selling and becoming more diverse, and safe. Taxes can eat up a lot of the pie!

To overcome this challenge, we use tax harvesting. As time goes by, some of the equties will experience a temporary loss. We can capture that loss for tax purposes. Then, sell some of the concentrated equity without a taxable gain. As the concentrated equity position moves around in price, we can follow a similar process and reduce the tax burden.

Owners of concentrated equity can experience more choice and control over when, and how much, to pay in taxes. Working within your personal financial plan, you can take advantage of life events to realize gains opportunistically, and reduce your overall lifetime tax burden.

Gain Confidence to Maintain the Right Amount of Concentrated Equity

A successful investment in a concentrated equity position can be a life-changing financial decision for you and your family. We proceed with two absolute truths:

1. First, we want you and your family to be financially safe.
2. Second, after your financial plan is secure, we want you to have the confidence to become even more wealthy.

We often say that we would like to see at least as much money outside of your company as you have inside the company—just in case something happens it doesn’t completely wipe you out. For some people, this may be difficult because of the amount of wealth inside the single stock is so great. It still remains a good long-term, real-life goal. And if we get enough money outside the company to keep you and your family safe, then you may choose to take the risk of keeping the rest in the concentrated position. Your financial plan and planner provide you the confidence to possibly become very wealthy.

For some people, half of your wealth outside the concentrated equity position may still be too much risk. This is completely understandable—and normal. As a company grows, the influence of a single person declines, and so does our control and ability to affect the outcome. So it is natural to want to reduce that risk as we age. In these situations, we continue the diversification and tax mitigation strategies discussed elsewhere for many years—perhaps the entirety of your life.

  1. Source: Fisher, Lawrence & Lorie, James H, 1970. “Some Studies of Variability of Returns on Investments in Common Stocks,” The Journal of Business, University of Chicago Press, vol. 43(2), pages 99-134, April https://www.jstor.org/stable/2352105

Self-help Resources

Videos, podcasts, white papers and more for owners of concentrated equity
To learn more about concentrated equity strategies

Listen to a podcast

Episode 16: Concentrated Equity 1 of 2

January 26th, 2021 | 22:25 | E16

Karl Frank and Nathan Merrill discuss what to do when a large amount of your net worth is tied up in a single company’s stock. This is called having concentrated equity. Learn investment and tax strategies to reduce the tax-load and increase the after-tax money you have. Learn about costs, complexity and safety for different strategies. Learn about two different types of charitable trust strategies. For the newly-minted wealthy, these decisions are complicated and important.

Show Contributors: Karl Frank and Nathan Merrill

Episode 17: Concentrated Equity 2 of 2

February 2nd, 2021 | 25:29 | E17

Karl Frank and Nathan Merrill discuss practical plans for owners of stock options, restricted stock and other types of concentrated equity. Learn three big rules for owners of concentrated equity, and Karl’s favorite “go tax free” idea for owners of concentrated equity. Other ideas include nonqualified deferred compensation, employee stock purchase plans, net unrealized appreciation and more. Learn the first thing and most important to do when you receive a concentrated equity plan. We also discuss how to build a secure financial plan if you are going to keep a large amount of money in the equity of a single company. Know that you are in good company. Many people have struggled with the same issues!

Show Contributors: Karl Frank and Nathan Merrill

For even more info about concentrated equity strategies

Watch a video

Get a preliminary view into more than a dozen ways to manage a portfolio of concentrated equity.

To read at your own pace

Download a white paper

Get a preliminary view into more than a dozen ways to manage a portfolio of concentrated equity.

Client Stories

Executive with Concentrated Equity

Edward is an executive whose technology company went public. He has stock options, restricted stock units and owns stock outright in his ESPP (Employee Stock Purchase Plan). He has 100% confidence in his company’s ability to grow faster than other companies and wants to maximize his returns. But he also wants to protect his family’s financial security and not put them at risk by keeping too much with his employer. He has college to plan for, a new mountain vacation home to finish and to furnish, and charities, including his church, he would love to support.

We:
Created a list of action items
Set priorities
Established a “safety first” financial plan
Prioritized and minimized tax and other costs with the various concentrated equity positions
Calculated how much equity he could keep with his employer, giving him the chance for substantially even more wealth while keeping his family safe.
Ongoing investment management

Edward says, “You are a great listener and make it easy for me to understand my options.” His successful outcome is more than financial, it is an emotional win for him and his family. Plus, he has the freedom to pursue his passion for the outdoors.

Services We Provide

Investment Advice

Asset Allocation & Portfolio Management

Balance the risk and reward between investments to achieve your real-life financial goals.

Stock & Stock Fund Investments

We build high-quality, actively-managed equity portfolios using academically-proven techniques.

Stock and Stock Fund Investments
Single Stock Diversification

Single Stock Diversification

Learn how we build an investment portfolio around your large equity position and help you diversify—not double-down (or worse) your risk.

Stock Option Planning

Learn about how we manage incentive stock options and nonqualified stock options to help you grow and protect your wealth, reduce your taxes, and achieve your personal goals.

Tax and Estate Planning

Bond & Fixed Income Investments

Learn how our team makes recommendations for the portfolio we call “Foundation Income.”

Hedging Strategies & Alternatives

Learn how we carefully select some alternative investments to provide income and growth for some clients.

Hedging Strategies
Investment Performance Analysis

Investment Performance Analysis

Learn how we perform investment performance analysis and provide our clients access to this information, on demand, with great technology.

IRAs: Roth, Rollover, Inherited and More

Learn how we solve the complex problem of providing retirement income and reducing income taxes.

Financial Planning
Annuity

Annuities of All Kinds

For some clients, an annuity may provide a safe and prudent retirement income. We have independent, expert annuity agents with a huge array of providers to choose from.

401K Advice for Individuals and Businesses

Learn how we provide retirement plan advice for our clients 401k accounts, and for employers who want to provide advice to their employees.

401k Advice

Learn more!

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