Too Much Concentration

Having too much of a good thing can be bad for your portfolio.

Perhaps you have a favorite company that you love, and you’ve gradually invested more and more in it, until it has reached an unhealthy portion of your portfolio. Or, you’ve received stock and stock options from your employer but have put off selling it until you retire.

If you haven’t done so recently, it may be time to check your portfolio’s diversification. Overweighting in a single investment, especially your employer’s stock, may create a disproportionate amount of risk for your portfolio. If you are concerned that you may be in that position, talk to your financial and tax professionals about how you can ease out of such a large commitment without giving a chunk back to Uncle Sam.

Here are a few of the potential options available to you:

Stagger your stock sales – It may seem like common sense, but by simply selling equal proportions of your stock over a period of several years, you reduce the amount of capital gains tax owed in one particular year.

Consider gifting it – If you’re feeling generous, you may consider gifting a certain amount of the stock to a child, grandchild or charity. Besides being a great gift, it helps you avoid paying capital gains taxes.

Consider individual cost basis – By carefully selecting for sale the stocks in your portfolio with the highest cost basis, you can minimize the amount of capital gains tax you have to pay.

When it comes to diversification plans, one size does not fit all. It’s important that you talk to a financial professional to create a specific, individualized plan to carefully ease all of your nest eggs out of one basket.

Diversification seeks to maximize the performance by spreading your investment dollars into various asset classes to add balance to your portfolio. However, using this methodology does not eliminate the risk of loss in a declining market.

Registered Representatives offer securities through Securities America, Inc., member FINRA/SIPC, and Financial Advisors offer advisory services through Arbor Point Advisors, LLC. The Hart Group, Arbor Point Advisors, and the Securities America companies are separate entities. Written by Securities America for distribution by The Hart Group.Securities America and its advisors do not provide tax advice. Please consult with your tax professional regarding your individual tax situation.

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