When One Stock Becomes Too Big: A Practical Guide to Handling Highly Appreciated Stock

by Corey Sunstrom, CFP®
Director of Financial Planning

Every investor dreams of it. You buy a stock early, hold it patiently, and years later realize one position has quietly become the engine of your entire portfolio. It feels validating. It feels smart. And then, usually right after that feeling sets in, it starts to feel uncomfortable.

Highly appreciated stock is a good problem to have, but it’s still a problem. Left alone, it can turn a well-diversified plan into something fragile without you noticing. One earnings call, one regulatory change, one shift in the business cycle, and suddenly your financial future is riding on a single ticker symbol. The upside can feel intoxicating, while the tax consequences of doing anything about it feel paralyzing. That tension is where most people get stuck.

This guide is meant to bring some calm and clarity to that moment. Not with dramatic advice or market predictions, but with a framework for thinking through concentrated stock positions thoughtfully, balancing risk, taxes, and long-term goals without letting fear or inertia make the decision for you.

How People End Up With Concentrated Stock Positions

Most concentrated positions are not the result of reckless behavior. In fact, they usually start with good decisions that compound over time. Employees receive stock or options and hold them as the company grows. Early investors stick with a business that executes exceptionally well. Inherited shares come with a very low cost basis, making selling feel especially painful. In many cases, the investor simply owned a great company and never saw a compelling reason to trim along the way.

There’s also a psychological layer that sneaks in. Selling a winning stock can feel like betraying a good decision or admitting the best days are behind it. Holding feels loyal and disciplined, even when the position has grown far beyond its original role in the portfolio. Over time, what was once a modest allocation quietly balloons into something much larger, until diversification becomes accidental rather than intentional. At that point, the issue isn’t whether the stock is good or bad. It’s that your risk exposure has fundamentally changed.

The Core Tradeoff: Taxes Versus Risk

At the heart of every conversation about highly appreciated stock is a simple but uncomfortable tradeoff. On one side is capital gains tax, which is real, visible, and permanent once paid. On the other side is concentration risk, which is easy to ignore precisely because it hasn’t caused pain yet. Many investors become so focused on minimizing taxes that they underestimate the financial and emotional cost of a large loss if the stock declines meaningfully.

This is where people often feel stuck. They know the position is too large, but selling feels wrong. Holding feels risky. Doing nothing feels safer in the moment, even though it quietly increases exposure. The internal dialogue usually sounds like this: “I don’t want to pay the tax,” followed closely by, “But I also don’t want to be the person who sold right before it went higher.” That emotional tug-of-war can keep someone frozen for years, even as the risk grows.

One question we often come back to is simple but clarifying: what’s more expensive, a 15 percent capital gains tax or a larger loss if things don’t go well? Taxes are certain and quantifiable. Losses are open-ended and unpredictable. Sometimes the answer still favors holding, but framing the decision this way forces an honest comparison between a known cost and an unknown risk.

The better question is not how to avoid taxes at all costs, but what risk you are accepting by staying concentrated. Taxes are a known quantity. Market risk is not. Sometimes the math favors holding. Sometimes it doesn’t. But avoiding the decision entirely is often the riskiest option of all, because it leaves your future exposed to a single outcome you cannot control.

Start With the Big Picture

Before getting tactical, it helps to step back and look at the role this stock plays in your overall financial life. If the stock dropped sharply tomorrow, would it materially change your retirement timeline, lifestyle, or sense of financial security? Are you holding it because it still fits your long-term plan, or because selling feels emotionally difficult? And perhaps most revealing, if you were starting fresh today with cash, would you choose to allocate this much to this one company?

These questions are not designed to push you toward selling. They are meant to clarify whether the concentration is intentional and aligned with your goals, or simply the byproduct of time and success. Once that distinction is clear, strategy becomes much easier to define.

Strategy One: Slow and Intentional Diversification

For many investors, the most practical solution is gradual diversification. Instead of selling a large position all at once, shares are reduced steadily over time. This might mean selling a fixed dollar amount each year, trimming a percentage of shares, or selling when certain price or valuation thresholds are reached. The goal is not to time the market perfectly, but to reduce exposure methodically while spreading capital gains across multiple tax years.

This approach tends to feel manageable emotionally and financially. It avoids the pressure of making an all-or-nothing decision and allows the portfolio to evolve toward a healthier balance. The tradeoff is that concentration risk still exists during the transition period, which means this strategy works best when the position is large but not dangerously so, and when predictability matters more than speed.

Strategy Two: Staged Selling With Purpose

Staged selling builds on gradual diversification by giving each sale a clear purpose. Instead of selling simply because the stock is large, shares are sold to fund specific goals such as retirement income, major purchases, portfolio rebalancing, or building a cash reserve. Framing sales this way changes the narrative from “giving something up” to “putting gains to work.”

This approach also creates discipline. Sales are driven by planning milestones rather than headlines or short-term market moves. Over time, it reduces concentration risk while reinforcing the idea that the stock’s success is meant to support your broader financial life, not dominate it.

Strategy Three: Hedging Risk Without Selling

In some cases, selling outright is not desirable or feasible in the short term. That’s where hedging strategies can be useful. Options strategies such as protective puts or collars can limit downside risk while allowing you to continue owning the stock.¹ In plain language, these strategies create guardrails around losses, sometimes in exchange for limiting upside.

Hedging can make sense when taxes make immediate selling unattractive, when there is a defined risk window such as a corporate event, or when the stock holds emotional or legacy significance. The downside is cost and complexity. Options require monitoring and are not appropriate for every investor or every situation. Used thoughtfully, they are best viewed as temporary tools rather than permanent solutions.

Strategy Four: Charitable and Gifting Techniques

Highly appreciated stock can also be used creatively in charitable and family planning. Donating appreciated shares to charity can eliminate capital gains tax while supporting causes you care about. Gifting shares to family members may shift gains into lower tax brackets, depending on the circumstances and current rules. These strategies do not eliminate concentration risk on their own, but they can be powerful complements to a broader diversification plan that aligns financial decisions with personal values.

Accepting That Some Tax Is the Cost of Progress

This is often the hardest mindset shift. Paying capital gains tax feels like a loss, even when it comes from a significant win. But taxes are not a punishment for poor decisions. They are the byproduct of success. In some situations, the cleanest and most responsible choice is to sell, pay the tax, and reinvest into a diversified portfolio that better supports long-term goals.

A simple question can help clarify this moment: if you could reset today with a diversified portfolio and no concentration risk, would you intentionally rebuild this position just to avoid taxes? If the answer is no, that insight is worth paying attention to.

Pulling It All Together

There is no universal solution for handling highly appreciated stock. The right approach depends on taxes, risk tolerance, cash flow needs, emotional attachment, and long-term objectives. What is universal is the danger of doing nothing. Concentration risk rarely announces itself loudly. It builds quietly and reveals itself at the worst possible moment.

Our role is not to predict stock prices or tell you when a winner has peaked. It’s to help you make deliberate decisions that protect what you’ve built while keeping your financial plan aligned with the life you want to live. Sometimes that means moving slowly. Sometimes it means being decisive. Often, it means a combination of both.

And it often comes back to that same comparison. A known tax cost versus an unknown downside. A 15 percent tax versus the possibility of a much larger loss. One is uncomfortable. The other can be destabilizing.

Your portfolio should support your life, not keep you up at night because one stock has too much say in the outcome.

¹Options involve risk and are not suitable for all investors.

Safeguard Your Finances With Pro Guidance

Want to learn more about highly appreciated stock and how they could impact your finances? You don’t have to navigate this complex terrain alone. Working with an advisor can help you understand your options.

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