Many people find that a significant portion of their assets can accumulate in one particular stock.
If you have a long career working for the same company or perhaps have acquired stock through inheritance, it is easy to reach the point where this single holding is sizable enough that you want to evaluate your situation and consider a range of strategies around the stock.
There are several alternatives for managing concentrated stock positions; however, such recommendations really depend on your individual circumstances and the particulars of your financial and tax situation. Another variable is whether you are an employee or a corporate insider.
If you are a corporate insider - if in doubt, contact your corporate counsel - you may be subject to certain legal and company considerations for disposing of your company stock.
You and your financial advisor should work with your legal and tax professionals to help evaluate possible strategies.
The list of tools or alternatives for managing a concentrated equity position may include gradually selling and repositioning; hedging alternatives for managing risk; estate planning and charitable techniques; or borrowing against your stock.
Often a combination of strategies is an optimal solution. You can earmark a certain portion to sell, to hedge and to meet your tax and philanthropic goals.
Sometimes the simplest solution is best. You can gradually sell shares and reinvest the proceeds into other investments.
Selling over time lets you spread your gain or loss over time, as well as the attendant tax impacts and diversify and better control your financial situation.
Other strategies, such as hedging or establishing a charitable remainder trust, can be combined with this strategy, and your financial advisor can help you evaluate the variations of this approach.
Certain hedging strategies let you control your exposure to any one stock and help you control downside risk.
With a substantial position in one stock, you may look for strategies that will help reduce your overall income and estate tax liabilities and help you achieve your philanthropic goals.
There are charitable giving strategies that can provide you with a current income tax deduction, create a continuing source of income for you or possibly your heirs, and provide a way to avoid paying current capital gains tax on appreciated assets.
A simple tax-efficient way to benefit the charitable organizations you support is to consider making your annual charitable gifts or pledges with appreciated stock instead of cash.
You will conserve your cash while avoiding the taxable capital gains you would create by selling the stock.
Determining which of these solutions is appropriate for your circumstances requires an in-depth evaluation of the stock you own, any restrictions you may be subject to, your financial position and your objectives.
Consult with your financial advisor, who can consult the team of professionals at his or her firm to help evaluate your situation and provide you with a range of strategies to consider in view of your financial goals.
• William J. Hertzog, CIMA, is first vice president of investments for Wells Fargo Advisors, LLC, in Ahwatukee. Reach him at (602) 952-5133 or www.TheHertzogGroup.com. Wells Fargo Advisors, LLC, member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. Note: Investment and insurance products are not FDIC insured, not bank guaranteed and may lose value.