You’re in your mid-thirties. Married, maybe starting a family, maybe just closed on a house. You’re finally earning “real” money.
Part of that comp package is equity in the company you work for, vesting quarterly. Modest at first, so you don’t think much about them... you let them vest, you let them sit.
Five years go by. You blink, and those “modest” vests have quietly become 70-90% of your entire balance sheet.
You know you’re overconcentrated. You’ve known for a while. Every financial rule you’ve ever heard says to diversify. And you haven’t done anything.
Life is busy, you have no idea where to start, and the tax bill makes you sick to your stomach.
That’s the wrong tradeoff to be making because it doesn’t have to be an all or nothing scenario. There are at least five ways to reduce concentration without writing the IRS a number that makes you sick.
The Short Version
The instinct to freeze comes from thinking diversification means one big taxable sale when it doesn’t
Exchange funds let you swap concentrated stock for a diversified basket, tax-deferred
A structured 10b5-1 plan turns “I should sell some” into an automated, unemotional process
Direct indexing lets you harvest losses elsewhere in the portfolio to offset gains from the position you’re unwinding
Charitable vehicles (DAFs, CRTs) can offload appreciated stock without a capital gains hit at all
Options collars protect against downside while you build a real plan… without selling a share
1. Exchange Funds
An exchange fund pools your concentrated stock together with shares contributed by other investors holding different concentrated positions. In return, you get a proportional interest in the diversified pool. Because it’s structured as a contribution rather than a sale, no capital gains tax triggers when you go in.
Pros: Immediate diversification with zero tax event at contribution. You go from one stock to effectively hundreds overnight. Your original low basis carries over, but you’re no longer carrying single-stock risk while you wait to eventually recognize the gain.
Cons: A mandatory lockup of typically 7 years during which your capital is illiquid. Minimums are steep, usually $500K-$1M+, and funds are only open to accredited investors. You also don’t control what’s in the pool; you’re diversified, but into whatever mix the fund holds, not a portfolio built around your goals.
Best for: Someone with a large, low-basis position who doesn’t need the capital for 7+ years and values immediate risk reduction over control or liquidity.
2. A Real 10b5-1 Plan
Most people think of 10b5-1 plans as a compliance requirement for insiders. They’re also the single best behavioral tool available for reducing a position you’ve been unable to touch.
You set the rules once, sell X shares per month, or when price crosses a threshold, and the plan executes on autopilot. No daily decision, no watching the ticker, no talking yourself out of it because “it might go higher next week.”
Pros: Removes emotion and timing anxiety entirely. Provides insider-trading legal protection if that applies to you. Spreads the tax bill across multiple years instead of one lump sum, which can keep you out of the highest marginal brackets and avoid a single catastrophic tax year.
Cons: You give up the ability to react - if the stock drops sharply mid-plan, you’re still selling on schedule, gains or losses. Doesn’t eliminate the tax, just spreads it. Requires real discipline to set up correctly and stick with; poorly designed plans (wrong price bands, wrong cadence) can undersell in a rising stock or oversell in a falling one.
Best for: Anyone who’s proven to themselves they won’t sell on their own. If your vests have been piling up for years and you haven’t touched them, that’s the diagnosis.
3. Direct Indexing With Tax-Loss Harvesting
As you unwind the concentrated position, you need somewhere for that capital to go. Direct indexing means you own the individual stocks that make up an index, say the S&P 500, rather than a fund that tracks it. That structure creates ongoing opportunities to harvest losses across the portfolio and use them to directly offset the gains you’re realizing as you sell down the concentrated stock.
Pros: Can materially reduce the net tax bill on the unwind, not just once but every year the position is being sold down. Gives you a customized, diversified portfolio rather than a generic fund. Losses harvested can also offset other capital gains elsewhere in your life like a business sale, real estate, etc.
Cons: Only works if there’s market volatility to harvest losses from (a smoothly rising market gives you fewer opportunities). Requires more sophisticated management (and usually a higher account minimum) than a simple index fund. It reduces the tax bill; it doesn’t make it disappear.
Best for: Pairing directly with the 10b5-1 unwind… this is the mechanism that makes the years-long sale meaningfully cheaper, not a standalone strategy.
4. Charitable Vehicles (DAFs and CRTs)
If giving is already part of your plan, or even if it’s just something you’d consider, a donor-advised fund lets you contribute appreciated stock directly. You get a deduction on the full fair market value, and neither you nor the DAF pays capital gains tax when it’s sold inside the fund.
A charitable remainder trust goes further: contribute the stock, the trust sells it tax-free, and you receive an income stream from the proceeds for a set term or your lifetime, with the remainder eventually going to charity.
Pros: DAFs are simple, fast to set up, and give you an immediate deduction plus full tax-free diversification on whatever you contribute. CRTs let you turn a concentrated, non-income-producing stock into a diversified income stream, reducing risk and generating cash flow simultaneously, with no capital gains hit.
Cons: With a DAF, the money is no longer yours as it must eventually go to charity, so this only works for capital you were planning to give away regardless. A CRT is irrevocable and has real setup complexity and cost (legal drafting, trustee, ongoing administration), and the remainder isn’t coming back to your family.
Best for: The portion of a concentrated position you already intended to be charitable with — this shouldn’t be your only tool, but it’s the most efficient one for that slice.
5. Options Collars
If you’re not ready to sell, a collar lets you buy a put (downside protection) and finance it by selling a call (capping your upside), without selling a single share of stock.
Pros: Protects against a significant drop while you figure out the rest of the plan. No sale, no tax event, no basis change. Can be structured at little to no upfront cost by matching the put and call premiums.
Cons: Caps your upside so if the stock takes off, you don’t fully participate. It’s a bridge, not a destination; at some point the collar expires and the underlying concentration is still there. Also requires enough share count and liquidity in the options market for the specific stock, which isn’t available for every name.
Best for: Buying time for someone inside a blackout period or genuinely undecided and needing 6-12 months to build the real strategy without being exposed to a crash in the meantime.
Playing the Long Game
Nobody plans to end up 70-90% concentrated in one stock. It happens quietly, one vest at a time, while you’re busy with a new house, a new kid, a career that’s finally taking off.
The tax bill isn’t actually the obstacle. The false choice between “sell it all and pay up” or “do nothing and stay exposed” is the obstacle.
Every one of these tools exists because someone decided concentration risk was solvable without an all-or-nothing decision. The plan isn’t to eliminate the tax. It’s to stop letting the tax be the reason you never start.
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Upholdings Private Wealth is a registered investment adviser in applicable jurisdictions. Registration does not imply any specific level of skill or training.
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Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. There is no guarantee that any strategies discussed will achieve desired outcomes.
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