If you want to reduce a concentrated stock position, the good news is that you don’t have to sell everything at once, and you don’t have to hand a big chunk of your gains to the IRS to do it. Schwab’s guide lays out several ways to trim a single holding, and several of them are about timing and where the shares sit, not about guessing what the market does next.
A concentrated position can happen by accident. Maybe you got shares through an employer plan, inherited a block of stock, or bought one company early and watched it grow. Nothing wrong with that story. The only issue is that your whole financial picture can start to lean on one company’s next earnings report.
In this post I’ll walk through how to tell when a position is too big, what the long-term numbers say about holding a single stock, and a menu of ways to trim it while keeping taxes in check. There’s a worked example with real arithmetic, a prompt you can paste into an AI assistant to build your own schedule.
How Big Is Too Big?
Schwab, in its guide to highly appreciated stocks, draws a simple line. A single stock above 10% of your portfolio is a sign of overconcentration, and the bar is 20% if you’re restricted from selling (for example, if you hold company shares with trading windows or lockups).
That’s a useful starting point because it turns a fuzzy feeling into a number. Add up everything you own, including retirement accounts, then divide the value of that one stock by the total. If the answer is 10% or less, you’re under Schwab’s line. If it’s 30%, 50% or more, you’ve got a project.
What the Long-Term Data Says About Holding One Stock
You might wonder why a single stock deserves attention when it’s done well for you. The research is worth a quick look.
Hendrik Bessembinder, a finance professor, studied U.S. stock returns from 1926 onward in his paper “Do Stocks Outperform Treasury Bills?” According to a W. P. Carey School of Business summary:
- 58% of stocks failed to beat Treasury bill returns over their lifetimes.
- Just 86 stocks accounted for $16 trillion in wealth creation, half of the stock market total.
- 1,092 companies, or 4.3% of nearly 26,000 stocks, accounted for all of the $35 trillion in wealth above Treasury bill returns between 1926 and 2016. The remaining 96% of stocks collectively matched one-month Treasury bills.
A separate Vanguard study over 1987 to 2017 found the chance of beating the benchmark was about 11% with one stock and rose to about 48% with 500 stocks. And Vanguard’s UK site notes that in a study of more than 64,000 stocks from 1990 to 2020, just 2.4% of companies drove all of the market’s gains.
In my view, the encouraging way to read that is this: a small share of companies produces the gains, and a broad fund owns whichever ones they turn out to be. When you reduce a concentrated stock position and move the money into a diversified fund, you’re not giving up on growth. You’re making sure you own whichever companies turn out to be the next big ones.
Your Menu of Ways to Trim
Schwab groups the options into three buckets: keep the stock, sell the stock, or give it away. Here are the main moves, with the details that matter.
1. Sell in stages with a “tax budget”
Schwab recommends a multi-year sales plan with a tax budget. In my view, one way to build a budget is to sell only as much each year as keeps your gain in a bracket you’re comfortable with.
Selling in increments also has a trade-off Schwab points out: your concentrated position will take longer to unwind, so it stays exposed to market swings in the meantime. So a staged plan works best when you set the schedule in advance and then follow it.
2. Fill the 0% bracket first
For 2026, Revenue Procedure 2025-32 puts the 0% long-term capital gains rate at taxable income up to $49,450 for single filers and $98,900 for married couples filing jointly. The IRS explains that the rate depends on your taxable income and filing status, and that gains held more than one year are generally long-term.
That means if your other taxable income is modest, there may be room to sell some shares and pay no federal tax on the gain. The worked example below shows how to size that sale.
3. Sell inside a tax-advantaged account
Schwab notes that selling inside a 401(k) or IRA doesn’t create current taxes, since taxes apply when you withdraw. If your concentrated shares sit in one of those accounts, rebalancing is much simpler.
4. Ask about Net Unrealized Appreciation for employer stock
If your shares are company stock inside a 401(k), Schwab suggests considering Net Unrealized Appreciation (NUA) treatment before you sell or roll the account into an IRA.
5. Donate appreciated shares
Schwab says donating appreciated stock can provide a tax deduction equal to the fair market value of the donated shares. Deductions are subject to AGI limits, which Schwab describes as a new 0.5% floor and a 30% of AGI limit. Donor-advised funds are one common way to do it: you donate the shares now and recommend grants to charities over time.
6. Gift shares to family
Schwab says gifting shares to a family member in a lower tax bracket than yours can help, and that it can remove the future potential appreciation from your estate. The 2026 annual gift tax exclusion is $19,000 per recipient, according to Revenue Procedure 2025-32.
7. Hedge or index if you plan to hold for now
If you’re not ready to sell, Schwab describes protective puts, cashless collars and stop orders, which all have costs or limits. A put costs a premium that’s lost if the stock doesn’t fall. A collar caps your upside. A stop order may execute well below the stop price in a fast drop.
Direct indexing is another route: you hold many of an index’s individual stocks, adjust weights to avoid your concentrated holding, and harvest losses to offset gains from selling. That one is more involved.
8. If you’re an insider, use a written plan
Schwab notes that executives use 10b5-1 plans as an affirmative defense against insider trading claims.
A Quick Way to Pick Your First Move
| Your situation | Start here |
|---|---|
| Low income this year | 0% bracket sale |
| Shares in 401(k) | Ask about NUA |
| Charitable goals | Donate shares |
| Big gain, high income | Multi-year plan |
| Insider or restricted | Written plan |
You don’t have to pick only one. Schwab says the strategies “do not have to be all-or-nothing” and can be combined.
A Worked Example: Taylor’s Three-Year Plan
Here is an invented example so you can see the arithmetic. Taylor and a spouse file jointly. This is a made-up case, not a recommendation.
- Total investments: $300,000
- One stock: $200,000, which is 66.7% of the portfolio
- Cost basis (what they paid): $80,000, so 60% of every dollar sold is a gain
- Other taxable income: $70,000 a year
Step 1: find the room. The 0% bracket for joint filers tops out at $98,900 (the 2026 figure from Rev. Proc. 2025-32). Taylor already has $70,000 of taxable income, so there’s $28,900 of room.
Step 2: size the sale. Because 60% of each sale is gain, $28,900 divided by 0.6 is about $48,167. Taylor rounds down to $48,000.
Step 3: check the math. A $48,000 sale produces $28,800 of gain. Added to $70,000, that’s $98,800, just under the $98,900 line. If that same gain were taxed at 15% instead, the federal tax would have been $4,320.
Step 4: reinvest. Taylor puts the $48,000 into a broad fund. The total portfolio value doesn’t change, but the single stock’s share of it does.
Here’s how the concentration falls if Taylor repeats this each year and the numbers stay the same (ignoring market moves):
| After year | Stock share |
|---|---|
| Start | 66.7% |
| 1 | 50.7% |
| 2 | 34.7% |
| 3 | 18.7% |
For comparison, selling all $200,000 at once would realize a $120,000 gain. At a 15% rate that would be $18,000 in federal tax. The simplifying assumptions here are important: the example ignores state taxes, the 3.8% net investment income tax, inflation adjustments to the brackets, and market movement. Your own numbers will differ, so treat this as a template for the method, not a forecast.
Taylor could speed things up by combining moves, for instance by donating some shares to a donor-advised fund in a high-income year, or by selling extra in a year when income dips. That’s the “tax budget” idea in practice.
Make a Plan You Can Follow
A schedule helps when you reduce a concentrated stock position, because it takes the decision out of your hands on the days when the stock is up or down 8%. Here’s a simple way to build one.
- Find your number. Add all accounts, then divide the stock’s value by the total. Write down the percentage.
- Set a target. Schwab’s line is 10%. You might pick that line or a higher number you’re more comfortable with, and then move toward it over a set period.
- Pull your cost basis. Your brokerage shows it by tax lot. Knowing which lots have the highest basis helps you realize smaller gains first.
- Estimate taxable income for the year. A tax software “what-if” or your last return gets you close.
- Size this year’s sale. Use the 0% bracket math, or a bracket you’re comfortable with.
- Pick the destination. Decide in advance where the money goes, such as a total-market fund, so you aren’t deciding under pressure.
- Put dates on the calendar. One or two sale dates a year, same days each time.
- Review each January. Update the numbers, because brackets and the stock’s price will have moved.
Let AI Build Your Schedule
Paste this into an AI assistant and fill in your own numbers. It’s designed to keep the assistant from guessing.
Help me build a multi-year plan to reduce a concentrated stock position, using ONLY the numbers I give you.
Total value of all my investments: $[amount]
Value of the single stock: $[amount]
Total cost basis of that stock: $[amount]
Account type where the shares sit: [taxable / 401(k) / IRA / mixed]
Filing status: [single / married filing jointly / head of household]
My expected taxable income this year, before any sale: $[amount]
My target percentage for the stock: [percent]
Is this employer stock or am I restricted from selling? [yes/no]
Rules:
- Ask me for anything missing before you calculate.
- Show every calculation step by step so I can check it.
- Do not guess tax rates or brackets. Use only the long-term capital gains thresholds I give you (they depend on taxable income and filing status).
- Do not predict the stock's price or tell me what to buy.
- Lay out a year-by-year selling schedule with the gain for each sale and how the stock's share of my portfolio changes.
- End with a list of the assumptions you made.
My Take: The Plan Matters More Than the Perfect Move
I think the biggest win here isn’t finding the perfect tax trick. It’s deciding on a schedule and sticking to it. The numbers from Bessembinder’s research make a strong case that owning one stock is a bet most people don’t realize they’re making. Once you accept that, the rest is mechanics.
I’d also point out that none of the methods above require you to be right about the stock. If the shares keep climbing, your staged plan still leaves you with a healthy position. If they stumble, you’ve already trimmed. That asymmetry is the whole appeal of a plan.
Questions People Ask About Trimming One Stock
Do I have to sell it all? No. Schwab’s 10% line is a guide, and you can bring the holding down to a level you’re comfortable with. You can keep a slice of a company you believe in.
What if I sell and the stock keeps going up? It can. Schwab acknowledges that incremental selling means the position takes longer to unwind, while a faster exit reduces exposure to a drop. Choosing a schedule ahead of time takes the second-guessing out of it.
Can I use a loss somewhere else to offset the gain? The IRS says capital losses offset capital gains, and if losses are larger you can deduct up to $3,000 of the excess against other income, carrying the rest forward.
Are the 0% bracket numbers the same every year? No. The IRS adjusts them annually. The figures in this post are the 2026 thresholds from Rev. Proc. 2025-32, so check the current year’s numbers before you act.
Does selling inside my IRA create a tax bill? Schwab says selling inside a 401(k) or IRA doesn’t create current taxes. Taxes apply on withdrawals.
Ten Minutes With Your Brokerage Statement
The simplest way to reduce a concentrated stock position is to start with one number and one date.
Open your brokerage account, add up the total, and calculate the percentage in your biggest holding. Write the number down. Then ask yourself which of the eight moves above fits your situation and put one date on the calendar to act.
This post is general information, not financial, tax or legal advice, and it does not recommend buying or selling any security. Tax rules and thresholds change and depend on your situation, so confirm details with the IRS or a qualified tax professional.
Sources:
- 3 Strategies for Highly Appreciated Stocks — Charles Schwab
- Do Stocks Outperform Treasury Bills? — W. P. Carey School of Business, Arizona State University
- Revenue Procedure 2025-32 — Internal Revenue Service
- Topic no. 409, Capital gains and losses — Internal Revenue Service
- Am I too exposed to the US — and does it matter? — Vanguard