Concentrated Wealth
A single stock. The family business. A generational farm. Employee stock options. What concentrated wealth is, its real risk, and the strategies to manage it.
Concentrated wealth is one holding — a company’s stock, a business, land — carrying an outsized share of your net worth. It arrives in familiar ways: equity earned over a career, a business built, land passed down, one good investment held while it worked. As value investors, we are not against it. We understand the standard advice, concentration is risky so diversify, and sometimes that is exactly right. But it is not the whole picture of the risk, and it is not the only way to manage it. The real risk depends on three things: how much rides on it, how good the asset is, and what it is worth.
How much risk is actually there
Size is the number everyone looks at, and on its own it says very little. Three things together tell you how much risk a position actually carries: how much of your life depends on it, how durable the business underneath it is, and what valuation it is trading at.
Three questions, a simple risk assessment
Every concentrated position lands somewhere on each of these. None of them, including size, tells you the risk by itself.
How much rides on it. The position’s share of your net worth, and more important, how much of the plan depends on it going well.
How good the asset is. This one takes real analysis, and the risk it measures is permanent loss rather than a moving price. What protects the business from competition, how durable its demand is, what it owes. Quality changes over time, so the question comes up again.
What valuation it carries. What it would sell for today shapes the return from here, and an excellent business valued for perfection can carry more downside than a good one valued fairly. It also sets the math on whether trimming makes sense.
Read together, they explain why one large position is fine and another is not. Sixty percent of a net worth in a durable, fairly valued business, held by a family that does not need the money, can be perfectly sound. Thirty percent in a fragile, expensive one that the retirement depends on is a problem.
The strategies
Every strategy below sits somewhere between keeping the position and selling it, and most families end up using more than one.
Seven strategies, from keeping the position to selling it
Hold as-is
Keep it, on purpose, and revisit the decision as the facts change.
Fits when: the asset is durable and the plan barely leans on it.
Redirect the cash flow
If the asset pays you rent, dividends, distributions, or profits, keep it and invest that income elsewhere. The position stops growing as a share of what you own, and something else starts building alongside it.
Fits when: the asset is worth keeping but you would rather the new money went somewhere else.
Set a guardrail
A written ceiling on the position’s share of your wealth, with sales scheduled whenever it goes above the line. The decision gets made once, in advance.
Fits when: managing temperament is the goal, or the position’s size keeps you up at night.
Hedge the downside
For listed shares, options can limit how far the position can fall, and they cost real money to put on. Company insiders are often restricted from using them, and the structures need someone who does this work regularly.
Fits when: the position has to be kept for a while and a sharp drop would do real damage.
Borrow against it
Creates cash without selling, which solves a liquidity problem rather than a concentration one. It also adds borrowing risk on top of the position’s own: if the asset falls, the loan is still there, and a margin call can force the sale you were trying to avoid.
Fits when: cash is needed, selling is costly, and the borrowing is modest.
Give instead of sell
Giving an appreciated asset to charity generally avoids capital gains tax on the appreciation and can produce a deduction, subject to holding-period rules and limits based on your income. Gifts to family move future growth out of your estate. And what is still held at death may receive a step-up in basis.
Fits when: giving and inheritance are already the plan; the position becomes how it gets done.
Sell in stages
Sales paced across tax years, matched against losses and timed around your other income, usually cost far less in tax than selling all at once. They also cost less than holding a position you should have trimmed because you did not want to pay.
Fits when: the position should come down and there is time to do it carefully.
Sell now
Sometimes the right answer. The question to ask is what would actually change if the position fell by half and stayed there five years. If the answer is the retirement, the house, or a promise someone is counting on, the position is too large to leave alone.
Fits when: one bad outcome would change the family’s life, and the tax is worth paying to avoid it.
What to do with the proceeds is its own decision, and Retirement Income Planning covers it.
Concentration is how wealth gets built. Diversification is how it gets kept. And some of it is meant to stay concentrated.
Deciding where you want to be on that line is easier in a calm market than in a falling one.
- Concentrated wealth is one holding carrying an outsized share of your net worth — common, usually earned, and not automatically a problem.
- Concentration is one of three measures: how much rides on it, how good the asset is, and what valuation it carries.
- The same position can be conservative for one family and dangerous for another. Assessment comes before strategy.
- Strategies sit on one line from keeping the risk to removing it; the overlooked one redirects a cash-flowing asset’s income to wherever the next dollar earns most.
- Confidence sets the pace, consequence sets the ceiling — and the costly details reward planning ahead.
One asset built it. A design will keep it.
Concentrated positions — employer shares, equity compensation, businesses, and land — are a core of our planning work — whether the position is trimmed, hedged, redirected, gifted, or deliberately kept.
How we work →Educational content only. This article is for informational and educational purposes and does not constitute personalized investment, tax, or legal advice, and does not create an advisory relationship. Strategies described — including hedging, securities-based lending, charitable and family gifting, and tax elections such as net unrealized appreciation treatment — have costs, risks, eligibility requirements, and consequences that depend entirely on individual circumstances, and several are restricted or unavailable for certain holders. Nothing here is a recommendation to buy, sell, hold, hedge, borrow against, or gift any security or asset.
All investing involves risk, including possible loss of principal. Examples are general and illustrative only. Past performance is not indicative of future results. The firm and its related persons may or may not hold any security, fund, or asset class mentioned, and any such position may change at any time.
TenBroeck Wealth Management, LLC is an investment adviser registered with the State of California (DFPI). Registration does not imply a certain level of skill or training. The firm does not provide tax preparation or legal services; tax and estate strategies are developed in coordination with your CPA and attorney, who confirm and implement tax filings and legal documents. The firm is affiliated through common ownership with TenBroeck Insurance Services, a licensed insurance agency; the firm or its representatives may receive commissions on insurance products implemented for clients — compensation separate from advisory fees that creates a conflict of interest. Clients are under no obligation to purchase insurance through the affiliate. This and other material conflicts are described in the firm's Form ADV Part 2A, available upon request.
Written by Schad TenBroeck, CFP®, Principal. CFP Board owns the marks CFP® and CERTIFIED FINANCIAL PLANNER® in the United States.