Maximizing the profit from his highly appreciated and concentrated stock position while minimizing taxes in order to prepare for the next stage of his life

Concentrated Stock Strategy

The Challenge

At fifty years of age, Mark is finally reaping the rewards of a long and successful career with multiple publicly owned technology firms. He is not quite ready to throw in the towel and retire, but the significant amount of technology stocks he’s accrued via different equity compensation packages has him worried.

His past and current company stock has been on a strong trajectory course over the last decade, making him a multi-millionaire. However, more than half of his wealth is tied up in a couple of stocks, and selling his position would come with a considerable amount of taxes on stock gains.

Mark knows he is taking on a lot of risk by maintaining his concentrated position, but he is also hesitant to sell and face crushing capital gains tax. He has received a ton of different advice on what his next steps should be ranging from giving away his wealth to charity, buying into complex and expensive financial products, and pulling the band-aid and selling everything.

However, Mark isn’t sure whether any of the advice he has received is remotely helpful considering his unique situation and goals.

What Mark really needs is some insight into highly appreciated stock strategies that can help him make the most of his accumulated wealth. Eventually, he realized it was finally time to reach out for professional help.

The Approach

Step One:

Our team of wealth advisors sat down with Mark to talk through his current financial situation as well as his future goals. To help him craft a plan that works, we needed to understand what he hoped to accomplish and what he feared the most.

Step Two:

We worked with Mark to evaluate the potential risk and reward associated with maintaining his concentrated position or liquidating this underlying source of wealth. Ultimately, this led us to look for ways to neutralize the risk of his position. To accomplish this we took a bet against stocks and index funds in his industry, if something were to happen to his concentrated stock position, he could benefit from the downside.

Step Three:

After talking with Mark about his goals, we also decided to use his stocks as collateral to borrow money so he could invest in complementary investments. This helped us further diversify his portfolio. From there, we focused on tax loss harvesting the newly invested portfolio in order to minimize taxes on stocks and other investments.

Step Four:

Because we were able to harvest losses as the market moved up and down, our concentrated stock strategies helped Mark sell off his large holding of stock while incurring minimal taxes.

The Results

Mark is so glad he didn’t sell off all his stocks at once —or before he had the chance to neutralize some of his risk.

The sensible approach we suggested allowed him to rebalance his portfolio ina reasonable way while minimizing capital gains tax. That’s what Mark really wanted all along —to liquidate some of his wealth without sacrificing unreasonable sums of money to the government if he didn’t have to.

With the successful implementation of this strategy, Mark is now able to look at his overall wealth from a rational perspective. He also has a long-term plan that considers where he’s come from and where he’s going.

See how RHS Financial Can Help You Navigate your Equity