The past few years gave many investors exactly what they hoped for — and also set them up for some major risks.
If you bought the right stocks and held them through the volatility of the past few years, your positions have grown substantially. The problem is that “substantial” and “safe” are not the same thing.
We talk to a lot of clients who have watched a single holding climb to 20, 30 or even 40% of their net worth. Sometimes it’s a tech stock they’ve owned for a decade, or a company stock that has accumulated through a career of compensation packages. Either way, they’re sitting on significant gains.
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Many investors recognize the risks of holding too much in a single stock — they just don’t act.
Investors who struggle in retirement are often the ones who held for so long that the decision was eventually made for them, whether by a market correction, an estate situation or the realization that the tax bill they were trying to avoid had grown far larger than if they’d started earlier.
The position that built your wealth doesn’t have to be the one that defines your retirement. Getting there is mostly a matter of being willing to ask the question.
The attachment problem
When a stock has been good to you for a long time, it starts to feel like a relationship. Clients who’ve held Nvidia (NVDA) or Apple (APPL) or Microsoft (MSFT) through multiple cycles have watched those stocks get them through a lot. The idea of selling feels like betrayal. It isn’t rational, but human nature rarely is.
That attachment compounds over time. The longer a position has outperformed, the more convinced investors become that it will keep outperforming. We don’t want the discomfort of being wrong after so many years of being right.
Consider this: If you didn’t already own this stock, would you choose to put 35% of your retirement savings into it today? For most people, the honest answer is no.
At a certain point, the conversation ought to shift from maximizing returns to protecting what you’ve already built. Unlike institutions, individual investors don’t have the benefit of perpetuity — there’s a finite window to use and enjoy wealth.
The tax trap
Many advisers recommend reducing concentrated positions. The problem is, most people know that intellectually, but as soon as advisers bring it up, all the client hears is “taxes.” They’re not entirely wrong to do so.
Investors often let the tax tail wag the dog — prioritizing the avoidance of a tax bill over making decisions that better align with their long-term goals.
A position worth $1 million with a $100,000 cost basis carries $900,000 in embedded gains. In higher-tax states, the combined federal and state rate could reach 37.1%, meaning selling could result in a tax bill of more than $330,000.
So investors hold. They tell themselves the position is still performing. They say they’ll deal with it later. But deferring a decision is still a decision, just not a conscious one.
Eventually, “later” becomes “now.” The closer a client is to retirement, the more that tax liability weighs on their financial decisions. Spending decisions, income planning and even how much they let themselves enjoy retirement all get filtered through the same question: What will it cost me in taxes?
People end up taking the minimum required by their RMDs and missing the years when they actually have the energy and desire to use their wealth. The government’s distribution schedule isn’t designed around your travel plans.
Building a way out
The good news is that selling everything at once is rarely the right answer anyway. There are structured approaches that can gradually reduce concentration, spread tax consequences over time and preserve flexibility.
The most straightforward is staged selling across multiple tax years, which allows an investor to recognize gains in manageable increments rather than all at once.
Paired with detailed cash flow modeling in retirement, this approach can actually free people up to spend more by making the tax exposure visible and predictable.
For investors who want to build a more systematic tax strategy, they can offset their gains through tax-loss harvesting.
Direct indexing strategies have also evolved considerably. The newer long/short variation is particularly relevant for people dealing with concentrated positions.
These methods are designed to generate losses over time, which may help offset gains as a concentrated position is gradually reduced. The goal isn’t to predict market direction, but to create flexibility and improve after-tax outcomes.
Another option worth serious consideration, especially in the current interest rate environment, is the charitable remainder trust.
The core appeal is simple: An investor contributes appreciated stock to the trust, and the trust sells the stock tax-free and reinvests the full proceeds.
The investor receives an income stream from the trust over their lifetime, and the tax liability on the original gain is spread across those payments rather than being due all at once.
With current interest rates, distribution rates from these trusts may exceed 10%, and the deduction generated can be paired strategically with Roth conversions in the years before RMDs begin.
None of these strategies requires perfection or a full exit. What they do require is a willingness to start. A conversation with your financial adviser is a meaningful way to get the ball rolling.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
