The challenge

Why Concentrated Stock Needs a Smarter Approach

Holding a concentrated stock can reshape the entire portfolio's dynamics. What seems like a simple, isolated issue often unfolds into a complex challenge, as taxes, timing, and portfolio structure all intertwine.

Concentration magnifies downside risk

If a single position grows disproportionately, the portfolio's performance may become excessively reliant on the results of a single company rather than a diversified investment framework.

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Taxes can make the next step harder

Although diversification is often the optimal long-term strategy, realizing significant capital gains upon selling assets can hinder straightforward implementation.

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Existing portfolio must be restructured

If the concentrated holding is retained, the broader portfolio should be structured to account for this existing exposure, rather than managed independently of it.

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Outright sale may not be an option

In certain cases, a gradual approach may be preferable to reduce risk while avoiding a single, tax-intensive transaction that forces an abrupt repositioning.

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FIt

When Concentrated Stock Situations Make Sense to Address

Concentrated stock positions warrant careful consideration when the holding significantly influences overall portfolio performance, when sale timing is critical, or when the investment is likely to be retained longer than initially planned.

Timing matters

The magnitude of the gain now precludes casual unwinding of the position.
Executing the sale in a single transaction introduce considerable capital gains.
Income and location determine tax impact.

Requires careful planning

When risk exposure is increasingly concentrated in a single asset, multiple strategies should be considered.
Staged liquidation, income generation, or risk mitigation may be more appropriate than an outright sale.

Portfolio needs restructuring

If holding is anticipated to remain in the portfolio at this time, the remainder of the portfolio should be adjusted.
Instead of holding the position in a silo, the risk of the concentrated asset should be balanced by the remainder of the assets.

The toolkit

Strategies DGS uses to manage concentrated stock positions.

Each strategy serves a different level of tax complexity. DGS selects the right tool based on the client's situation, not a one-size-fits-all approach.

Custom SMA

A deliberate long-only approach thoughtful about gains, losses, and turnover

What it is

A deliberate long-only portfolio approach that helps improve structure around concentrated positions while being thoughtful about gains, losses, and turnover.

Why it matters

It can be customized to incorporate the risk of the concentrated asset while providing a path to future diversification while minimizing tax impact.

When it matters most

When the concentration levels are low or the goal is to diversify over an extended period of time.

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Long-Short Strategy

A deliberate long-only approach thoughtful about gains, losses, and turnover

What it is

A more advanced extension of DGS's long-only strategy that uses both long and short positions to create stronger tax management benefits in taxable accounts.

Why it matters

DGS sees this as the more powerful option when the tax problem is larger or more immediate. It can create tax benefits much quicker than the long-only strategy.

When it matters most

When concentration is high, the tax burden is significant, and a long-only structure alone cannot address the complexity of the situation.

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Featured strategy

Covered Call Strategy

Generate income on a held position without triggering a sale

What it is

Writing call options against a concentrated stock position to generate premium income while retaining the shares — without triggering a taxable sale event.

Why it matters

When a position needs to be held, covered calls allow the portfolio to remain productive, generating income that can be used to reinvest in the client’s portfolio.

When it matters most

When the client wants to hold on to the stock and only sell at predetermined prices, the covered call strategy can be used as a way to generate additional income.

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Cashless Collar

Bound the position's range without an immediate sale

What it is

Simultaneously buying a put option (for downside protection) and selling a call option (to fund it), bounding the position within a defined price range at little or no net cost.

Why it matters

It provides meaningful downside protection without requiring an immediate sale, preserving optionality on when and how the position is ultimately unwound.

When it matters most

When the client needs near-term downside protection but is not yet ready to realize the embedded gain, the collar acts as a bridge between holding and selling.

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The advantage

Why our approach works best.

Tax efficient investing works because it helps reduce unnecessary tax drag, which means more of the client's money stays invested instead of being lost to taxes.

Less money leaves

Less money leaves the portfolio

Help reduce the tax impact of gains that have already happened or are expected soon. Every dollar not paid in taxes stays in the portfolio.

Strategy brief

Tax awareness

More thoughtful tax handling

Help reduce the tax impact of gains that have already happened or are expected soon. Every dollar not paid in taxes stays in the portfolio.

Strategy brief

Portfolio balance

Better portfolio balance

The broader portfolio may be optimized by strategically aligning it with the concentrated holding, rather than ignoring its presence.

Strategy brief

Implementation

More useful implementation options

Staged decisions, interim protection, or income-oriented approaches can all become part of the path forward — tailored to the situation.

Strategy brief

A more thoughtful approach to concentrated stock positions

Why Concentrated Stock Needs a Smarter Approach

Concentration magnifies downside risk

Taxes can make the next step harder

Existing portfolio must be restructured

Outright sale may not be an option

Concentration magnifies downside risk

Taxes can make the next step harder

Existing portfolio must be restructured

Outright sale may not be an option

When Concentrated Stock Situations Make Sense to Address

Timing matters

Requires careful planning

Portfolio needs restructuring

Strategies DGS uses to manage concentrated stock positions.

Custom SMA

Long-Short Strategy

Covered Call Strategy

Cashless Collar

Why our approach works best.

Less money leaves the portfolio

More thoughtful tax handling

Better portfolio balance

More useful implementation options

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