STRATEGIES
When "do nothing" stops being a strategy — and what to do instead.
A COMMON CHALLENGE OUR CLIENTS FACE
You've done well by holding. Maybe it was Amazon stock accumulated over a decade, Meta shares from the early days, or Nvidia you bought before anyone was talking about AI. The position has grown to represent 20%, 40%, maybe 60% of your net worth. And precisely because doing nothing has worked so far, you keep doing nothing.
This is how concentrated positions become problems. Not all at once, but gradually—like the proverbial frog in the pot. The position becomes golden handcuffs: something that keeps you from doing what you know you should, whether that's diversifying, retiring, or simply sleeping better at night.
// THE PROBLEM
The same discipline that built your position can become the obstacle to managing it.
We see this constantly with tech professionals. The same discipline that built the position—patience, conviction, long-term thinking—becomes the obstacle to managing it. And the tax bill looming over any sale makes "hold and hope" feel like the only rational choice.
It's not. There's a whole toolkit of institutional strategies designed to manage concentration risk while minimizing taxes. Most people just don't know they exist.
WHAT COUNTS AS "CONCENTRATED"?
The postition has grown large emough that a significant drop would materially change your life.
The embedded gains are so large that a simple sale feels prohibitively expensive.
You hate the thought of paying capital gains, so you do nothing—knowing you probably shouldn't.
Financial planning software typically flags anything above 5% as concentrated. We think that's overblown. For people early in their careers at growing companies, we generally don't get concerned until a position crosses 20% of investable assets. The more financial obligations you have—mortgage, kids' tuition, aging parents—the lower that threshold should be.
But here's the thing most people forget: your employment is already tied to your company. If you're also holding a large equity position in the same stock, you're facing double jeopardy when things go sideways. Nothing like worrying about your job while watching your net worth get cut in half.
The Goal: Manage Risk While Diversifying Tax-Efficiently
A decade from now, your concentrated position will be in one of three states: you'll have sold it (and paid taxes), you'll still be holding it (and still be exposed), or you'll have systematically diversified it using strategies that reduced risk along the way.
The third path is what we help clients navigate.
The goal isn't to eliminate the position overnight. It's to immediately reduce your exposure to company-specific risk while building a tax-efficient glide path toward diversification. Think of it as turning a binary "hold vs. sell" decision into a managed process.
CORE STRATEGIES
Hedging with derivatives
Options strategies—puts, collars, covered calls—can provide immediate downside protection without triggering a taxable sale. This is often where we start, particularly for the largest portion of the position where embedded gains make selling painful.
Direct Indexing
By owning individual stocks that track an index rather than holding a fund, we create ongoing opportunities to harvest tax losses. Those losses become a "bank" that can offset gains when we do sell portions of your concentrated position —effectively subsidizing diversification over time.
Exchange Funds
Contribute highly appreciated shares to a partnership alongside other investors. Receive diversified exposure immediately. After seven years, withdraw diversified shares at your original cost basis. Diversification without taxation.
The specific mix depends on your cost-basis ladder, time horizon, liquidity needs, and risk tolerance. Someone five years from retirement with 50% of their wealth in a single stock needs a different approach than someone mid-career with a position that's uncomfortable but not catastrophic.
How These Strategies Work Together
Most concentrated positions aren't monolithic. If you've accumulated shares over years of RSU vests or option exercises, you likely have tranches acquired at different prices—some with modest gains, others with enormous embedded appreciation.
We treat these differently.
MINIMAL GAINS
Sell them outright or use direct indexing to generate offsetting losses. The tax cost is manageable, and you get immediate diversification.
MODEST GAINS
Hedging strategies make sense for these shares. We can reduce your downside exposure using derivatives while you continue to participate in upside—all without triggering a sale.
BIGGEST GAINS
For your oldest, most appreciated shares, exchange funds may be the right tool. You get diversification on day one; the tax deferral lasts as long as you stay in the fund (minimum seven years).
Over time, as tax losses accumulate from direct indexing and hedging, we can use them to chip away at even the most appreciated tranches. It's a coordinated system, not a single tactic.
ACCESSING VALUE WITHOUT SELLING
Sometimes the challenge isn't just diversification—it's cash. You need capital for a down payment, a startup investment, or a large purchase, but selling stock means a six-figure tax bill.
Variable pre-paid forwards offer an alternative. You enter a contract to deliver shares at a future date and receive cash upfront—typically 75-90% of the position's value. You haven't sold the stock, so there's no immediate capital gains tax. You retain some upside participation and can structure downside protection through a collar.
This is a specialized instrument with real complexity (and costs), but for the right situation, it solves a problem nothing else can: accessing the value of highly appreciated shares without triggering taxes today.
Why This Isn't DIY Territory
Our clients are successful, highly educated tech professionals. Most of them could probably figure out pieces of this themselves—reading up on options strategies, opening a direct indexing account, researching exchange funds.
The risk is getting it wrong.
These aren't set-it-and-forget-it strategies. They require ongoing management: rolling options positions, monitoring wash-sale rules across accounts, rebalancing direct indexing sleeves, coordinating the timing of gains and losses across your household. Implementation mistakes can easily cost more than any fees saved.
A common DIY pitfall with hedging, for example, is letting shares get called away unexpectedly. You wake up one morning to find chunks of your position liquidated because you didn't fully understand early exercise risk—and now you owe taxes on gains you didn't intend to realize.
We work with institutional partners who specialize in each of these strategies. Many primarily serve family offices and endowments; some offer wholesale pricing that's only available through advisors. We handle coordination so the pieces work together, not against each other.
STAYING RICH VS. GETTING RICH
"To make money they didn't have and didn't need, they risked what they did have and did need."
WARREN BUFFETT
Being concentrated can make you rich. Being appropriately diversified is what keeps you rich.
Fifty years ago, the top companies by market cap included IBM, Exxon, GM, and AT&T. Today, none are in the top ten. Leading companies don't stay leaders forever, and it's nearly impossible to time the exit perfectly. What we can do is build a system that manages risk continuously—so you're not betting your financial future on getting the timing exactly right.
If you've built a concentrated position worth protecting, that's worth a conversation.
READY TO DISCUSS YOUR SITUATION?
The strategies discussed above involve risks including, but not limited to, market risk, leverage risk, short-selling risk, and tax risks. Tax-loss harvesting and tax-advantaged strategies depend on individual circumstances and may not be appropriate for all investors. There is no guarantee that any strategy will achieve its objectives. Prospero Wealth does not provide tax or legal advice. Clients should consult with their own tax and legal advisors regarding their individual circumstances. Past performance does not guarantee future results.