Approved Charles Marsala Explains: Risks and Strategies for Concentrated Positions Tracking # 1-331474
A concentrated position is a single stock that compromises more than 20% of an investor’s net worth. It may have been arrived by several means, but should the fortunes of a single company change it could jeopardize the investor’s financial well-being.
A 10% of portfolio value position is often recommend as a limit of an individual stock.
Investors holding Concentrated positions face a number of barriers to moving to a prudently diversified portfolio some are emotional and some are costs such as capital gains taxes.
The emotional attachment can be reviewed by asking the investors these type of questions: “If you were given in cash the equivalent of that stock today, would you ignore every other stock and put in all back into that one stock?”
Another question to ask is “What would effect your lifetime and legacy goals more? Having your concentrated stock position increase 100% or decrease 90%?”
For investors, it is about preserving what you have.
Several Strategies are available to handle or diversify Concentrated Positions: Exchange Funds, Asset Based Lending, Step-up death benefits, and Philanthropic Donations.
About the Author: Charles Marsala is a Financial Advisor with Benchmark Investment Group with Securities offered through LPL Financial, a member FINRA/SIPC. He can be contacted at Charles.Marsala@lpl.com