Some households find themselves with a large investment in one single stock. That can happen when a great investment takes off (think: Apple or Amazon). But concentrated equity positions can also occur through employee compensation arrangements or inheritance.
This can be both good fortune and significant risk. Past performance of a stock is no guarantee of future results, and if that one high-flying stock takes a downward turn, it could have serious repercussions for your financial wellbeing.
If you have a large amount of wealth in one single asset, talk to your financial advisor about strategies to protect yourself from risk. One option, of course, is to sell some of that asset to diversify your portfolio.
However, selling assets doesn’t always make sense. When that’s the case, hedging strategies can act as insurance against loss of value in the stock. Alternately, you may be able to use the stock as leverage to borrow against your portfolio and use the loan to invest in other assets.
Resolving concentrated equity positions can be complicated, emotionally and financially. Whether you choose liquidation and diversification or some other strategy, be proactive in managing that risk. Informed decisions now can help protect your nest egg long-term.
Stuart J. Oberman, Esq.
Stuart J. Oberman is the founder and President of Oberman Law Firm. Mr. Oberman graduated from Urbana University and received his law degree from John Marshall Law School. Mr. Oberman has been practicing law for over 30 years, and before going into private practice, Mr. Oberman was in-house counsel for a Fortune 500 Company.
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