Company stock can be one of the most valuable components of wealth for executives. It can also become one of the greatest sources of risk. When too much of an executive’s portfolio is tied to a single company, the fortunes of their career, compensation, and investments become closely intertwined.
Gregory “Greg” Matthews, Managing Director at Fourcore Capital, has spent more than 35 years working with corporate executives, entrepreneurs, and other high-achieving individuals. His approach to executive wealth planning starts with recognizing that concentrated stock requires more than a simple decision to sell.
“A concentrated stock position is when a disproportionately large share of an investor’s total portfolio or net worth is tied up in a single stock rather than being diversified across many holdings,” Matthews says. Industry thresholds typically flag a position above roughly 10% of investable assets as concentrated, with positions of 20% to 25% considered highly concentrated.
The Emotional Challenge Behind Concentrated Stock
For executives, reducing a concentrated position is rarely just an investment decision. Company stock can represent years of work, future compensation, and confidence in the business. Selling can also feel like a public statement about the company itself. That emotional connection can make it difficult to act even when the financial rationale for diversification is clear. Matthews sees a rules-based approach as one way to remove that pressure.
“For executives who intellectually agree they should diversify but emotionally can’t pull the trigger on a discrete sell decision, a 10b5-1 trading plan” can provide a framework. A preset, automatic selling schedule allows executives to diversify over time without making a new decision every time shares are sold. The approach can also address concerns around headline risk or the perception that an executive is losing confidence in their company. Instead of reacting to market conditions, the plan executes according to rules established in advance.
Creating a Tax-Efficient Path Out
Selling shares is not the only way to address portfolio concentration. For executives holding highly appreciated stock, the tax consequences of diversification can be a major consideration. A 10b5-1 plan can spread sales across months or years, potentially reducing market timing risk and, when sales span multiple tax years, spreading the associated tax burden.
Other strategies can address concentration without an immediate taxable sale. Exchange funds, for example, allow an executive to contribute concentrated stock to a pooled fund alongside investors contributing other concentrated positions. In exchange, the executive receives an interest in a diversified portfolio, generally without triggering an immediate taxable sale. These structures typically involve lengthy lockups and substantial minimum investments.
Charitable strategies can provide another route for executives who are already philanthropically inclined. Charitable remainder trusts and donor-advised funds can allow appreciated shares to be donated without recognizing capital gains on the donated portion, while potentially providing charitable or tax benefits. “In practice, most wealth managers don’t pick just one of these; they layer several,” Matthews says.
Hedging Risk Without Selling the Stock
For executives who cannot or do not want to immediately sell shares, hedging strategies can provide another layer of protection. Collars, protective puts, and covered calls can establish a defined range for the stock’s value. A protective put can limit downside, while a call can cap some upside in exchange for the premium received. These strategies can be particularly relevant for executives who face restrictions on selling during blackout periods or because of their insider status.
Variable prepaid forward contracts offer another way to monetize part of a concentrated position while deferring the actual sale. Under such arrangements, an executive receives an upfront payment in exchange for agreeing to deliver shares at a future date, while retaining some exposure to the stock’s future performance. These strategies are complex and can attract greater regulatory scrutiny, making specialized tax and legal advice an important part of implementation.
Building Lasting Wealth Beyond One Employer
Once concentration begins to fall, the next challenge is building a diversified portfolio that can stand independently of an executive’s employer. Matthews points to strategies such as direct indexing and tax-loss harvesting as complementary tools. By owning individual securities rather than an exchange-traded fund, investors can potentially generate tax losses that may help offset gains realized while gradually selling a concentrated position. Other approaches, including qualified opportunity zone investments, family gifting, and estate planning vehicles, can also play a role depending on an executive’s circumstances, goals, and time horizon.
The objective is to turn equity compensation into lasting wealth while balancing taxes, liquidity, risk, and long-term goals, and that requires a broader discovery process. Matthews brings experience from senior positions at firms including Donaldson, Lufkin & Jenrette, Merrill Lynch, Cantor Fitzgerald, Jefferies & Co., and Morgan Stanley Wealth Management, as well as expertise in alternative investments. His approach emphasizes understanding the individual behind the portfolio before determining which strategies fit.
A concentrated position may have been built through compensation, conviction, or circumstance, but managing it requires looking beyond the stock itself. The most effective strategy is one that connects diversification with the executive’s broader financial and personal objectives.
Follow Gregory “Greg” Matthews on LinkedIn or visit his website.
