Too much in one stock? A framework for concentrated positions

First, decide if you actually have a problem

A common rule of thumb treats a single position above roughly 10% of investable assets as concentrated — a screening threshold, not a law. The sharper questions: Could this stock drop 60% and stay down for a decade without changing your life? (Individual stocks do this; broad markets historically haven't stayed down the same way.) Is the position correlated with your paycheck — employer stock doubles the bet, because the bad scenario hits income and portfolio together? Is the position past the point where its upside changes anything, while its downside changes everything?

That last asymmetry is the honest core: once you've won, the marginal utility of doubling again is small and the cost of a wipeout is enormous. Diversifying isn't a bet against the company — it's collecting the win.

Know your lots before you touch anything

Every unwind decision is lot-by-lot, not position-by-position. Pull the tax lots: shares, basis, acquisition date, holding period. Long-term lots (held over a year) sell at capital-gains rates — 15% or 20% federal at higher incomes, plus the 3.8% NIIT and state tax; short-term lots sell at ordinary rates up to 37%, which usually makes waiting out the one-year boundary worth modeling. High-basis lots sell nearly tax-free; low-basis lots are the expensive ones. If the stock is startup equity, check QSBS qualification before selling a share — a qualifying exclusion can eliminate the gain entirely. The gap between a naive unwind and a lot-aware one is routinely measured in tens of thousands of dollars.

The menu, from simplest to most structural

Mechanisms worth knowing (availability and fit vary — this is a map, not a plan):

• A staged sale plan: sell fixed tranches on a calendar (quarterly, or at each vest), sized against your capital-gains brackets and the NIIT threshold each year. Boring, transparent, and what most situations actually need. Automatic-enough beats optimal-but-never-executed.
• Stop adding: sell new RSU vests as they land (vest-date sales have near-zero embedded gain), redirect ESPP proceeds, turn off dividend reinvestment in the position.
• Pair sales with harvested losses: realized losses elsewhere offset concentrated gains dollar-for-dollar — volatile years are unwind fuel. Mind the wash-sale rule across all accounts.
• Charitable routes: donate appreciated long-term shares (deduction at market value, embedded gain vanishes) — directly, via a donor-advised fund, or through a charitable remainder trust for larger positions where income-plus-deduction structure helps. Only economical if you'd give anyway.
• Exchange funds: contribute shares to a pooled vehicle and receive a diversified basket, deferring gains — at the cost of a multi-year lockup (commonly seven years), qualification requirements, and fees. Read the terms twice.
• NUA (net unrealized appreciation): employer stock inside a 401(k) may qualify for a special distribution treatment where the appreciation is taxed at capital-gains rather than ordinary rates — a one-shot election with strict mechanics; get professional help before touching the account.
• Hedging (collars, prepaid variable forwards) and 10b5-1 plans for insiders: legitimate tools with real complexity, cost, and — for hedges — constructive-sale rules to respect. Professional territory, listed here so you know the menu exists.

Run the pace as arithmetic, not anxiety

The core trade: selling costs tax now; holding carries concentration risk every year. A useful framing — compute the tax cost of selling a tranche as a percentage of its value (a long-term lot with 70% embedded gain at a 23.8% federal rate costs about 16.7% of the tranche in federal tax; a 100%-gain lot costs ~23.8% before state). Then ask what annual probability of a severe, lasting drawdown in a single name you'd accept to avoid paying that once. Framed that way, most households stop optimizing the tax and start optimizing the risk.

The step-up consideration cuts the other way for a slice: basis steps up at death, so the lowest-basis shares are the strongest candidates to hold longest, hedge, or give — while the diversification need is met from higher-basis lots. That's also where the plan should be pressure-tested by your CPA.

What Formation shows you

Formation surfaces the inputs the framework needs: concentration flagged across every account and entity (including the vesting schedule that keeps refilling it), tax lots with basis and holding periods unified across custodians, harvested-loss capacity visible next to embedded gains, and scenario math on staged sales — every figure cited, estimates labeled as estimates. Formation does not execute trades and does not give personalized advice; it puts the honest picture in front of you and your professionals.