What Counts as a Concentrated Stock Position?
There’s no single legal threshold, but most advisors get uneasy once one holding crosses 10 to 15% of your investable net worth, and genuinely concerned above 20%. If you read our recent breakdown of RSUs, ISOs, NQSOs, and ESPPs, you already know how these shares pile up through vesting schedules and payroll deductions. The real risk is your paycheck and your portfolio depending on the same company at the same time, not the quality of the stock itself. If your employer has a rough year, you could lose income and net worth together.
Why Do Executives Use 10b5-1 Plans to Sell Down a Position?
If you’re an insider or regularly hold material nonpublic information, you can’t sell whenever you feel like it. A 10b5-1 plan lets you set a predetermined selling schedule while you’re not in possession of inside information, then let it run on autopilot regardless of what you know later or where the stock moves. Since 2023, adopting or amending a plan also triggers a mandatory cooling-off period, generally 90 days for directors and officers before the first trade can go through, so this isn’t something you set up the week before you need liquidity. It keeps you compliant, and it removes the emotional guesswork of trying to time an exit. Once the cooling-off period passes, the selling happens on schedule.
What Is an Exchange Fund and How Does It Work?
An exchange fund lets you contribute your concentrated shares into a pooled fund alongside other investors diversifying out of their own concentrated positions, in exchange for a proportional stake in the fund’s diversified portfolio, without triggering a taxable sale. The tradeoff is a required holding period, typically seven years, plus reduced liquidity during that stretch. For an executive who wants to cut single-stock exposure without a large current-year tax bill, that tradeoff is often worth it. Whether it fits your situation depends on your cash needs, your timeline, and the rest of your investment strategy.
Can Direct Indexing Offset the Tax Bill While You Diversify?
Direct indexing builds you a portfolio of individual stocks that tracks an index, rather than owning the index through a fund. When paired with systematic tax-loss harvesting, the portfolio is actively monitored for individual stocks that have declined, allowing those losses to be realized and used to offset gains as you sell down your concentrated position. Done well, this lets you diversify meaningfully faster than a straight sell-and-pay-taxes approach would allow, because the losses are working alongside the gains instead of against them. It’s the kind of coordination we walk through when it comes to timing an exit around your full tax picture.
Should You Gift Appreciated Shares Instead of Selling?
Selling isn’t your only lever. Highly appreciated shares can be a genuinely efficient way to fund charitable giving or move wealth to the next generation, because the recipient, whether that’s a donor-advised fund, a charity, or a family member in a lower bracket, may owe less tax on an eventual sale than you would. The point holds across all of this: your shares don’t have to be a problem you solve with one large sale. They can be several smaller decisions, each suited to a different goal.
None of these strategies work in isolation, and none of them are the whole plan. A 10b5-1 schedule, an exchange fund, a tax-loss harvesting program, and a gifting strategy are all tools. The right combination depends on your income this year, your vesting schedule next year, and what you’re actually trying to build. If our recent blog on stock compensation left you with a clearer picture of what you’re holding, this is the next conversation: what to do with it.
Pull up a chair. Let’s talk about your position specifically. Reach out to the WealthCrossing team to start the conversation.
