Most significant wealth begins as a concentration.
A founder bets everything on a single company. An executive accepts equity compensation in lieu of higher salary and watches it grow over a decade. A business owner reinvests profits back into the one asset they understand better than anyone — their own enterprise. An inheritor receives a legacy position in a stock their family has held for generations.
In each of these stories, concentration was not a mistake. It was the mechanism. The willingness to be deeply, sometimes uncomfortably, committed to a single asset is often precisely what created the wealth in the first place.
The problem is not how the concentration was built. The problem is what happens when it is never addressed — when the same commitment that created the wealth becomes the force that puts it at risk.
This is a framework for thinking clearly about concentrated wealth: what it is, why intelligent people hold it longer than they should, and what a thoughtful approach to distributing risk actually looks like.
1. Concentration Is More Common — and More Dangerous — Than Most People Realize
Ask a high-net-worth individual whether they have a diversified portfolio and most will say yes. Ask them to describe their full balance sheet — including their business interests, their unvested equity, their real estate holdings, and their liquid investments — and a different picture often emerges.
Concentration risk does not only live in a brokerage account. It lives across the entire balance sheet, and it takes forms that are easy to underestimate.
A corporate executive with a well-diversified investment portfolio may still have sixty or seventy percent of their total net worth tied to the performance of a single employer — through unvested RSUs, vested shares they have not sold, deferred compensation balances that are unsecured obligations of the company, and retirement savings invested heavily in company stock.
A business owner with a thriving company may have the vast majority of their wealth locked inside an illiquid asset with no market, no daily price, and no straightforward path to liquidity except a sale that may be years away.
A family that inherited a founding position in a publicly traded company may hold shares with an embedded gain so large that selling feels economically irrational — even though holding means that one company’s fortunes determine the family’s financial security for another generation.
None of these situations is unusual. All of them carry risk that deserves to be named, measured, and managed rather than accepted by default.
2. Why Smart People Hold Concentrated Positions Too Long
The persistence of concentrated wealth is not simply a planning failure. It is a deeply human response to a set of forces that push consistently in the same direction — toward holding, not selling.
Understanding those forces is the first step toward making decisions that are genuinely in your interest rather than simply comfortable.
Familiarity and confidence. The asset at the center of the concentration is almost always one the owner knows extremely well. A founder knows their company better than any fund manager knows any holding in their portfolio. That knowledge creates a conviction — often justified — that the asset will continue to perform. What it does not create is immunity to the risks that no amount of insider knowledge can eliminate: macro shifts, competitive disruption, regulatory change, or the simple reality that even excellent companies go through prolonged difficult periods.
Tax reluctance. For assets with large embedded gains, the tax cost of selling is real and immediate. If you purchased shares at a low basis and they are now worth many times that amount, selling means writing a significant check to state and federal tax authorities. That friction is rational. But it often leads to a calculation error: the decision not to sell is treated as costless, when in reality it is a decision to accept ongoing concentration risk in exchange for tax deferral. The question is not whether the tax is painful. It is whether the risk of continued concentration is worth the deferral.
Identity and loyalty. For founders and long-tenured executives, their company equity is not just a financial asset. It represents years of effort, a community of colleagues, and in many cases a significant portion of their professional identity. Selling feels like a statement — about confidence, about loyalty, about what the asset means to them. These feelings are understandable. They are not, however, a sound basis for portfolio construction.
Inertia. Sometimes concentrated positions persist simply because addressing them requires decisions, and decisions require attention that is always being competed for. The position was there last year and the year before. It has not caused a visible problem yet. There is always something more urgent.
The accumulation of these forces — familiarity, tax friction, emotional attachment, and inertia — is why concentration persists even among people who understand perfectly well that diversification is the more prudent path.
3. The Framework: Four Questions That Drive Clearer Thinking
A useful framework for evaluating a concentrated position is not primarily about tactics. It is about asking the right questions in the right order before any tool or strategy is introduced.
Question one: What percentage of your total net worth is this position?
Not your liquid portfolio. Your total net worth — including business interests, real estate, deferred compensation, unvested equity, and insurance values. If a single asset represents more than twenty to twenty-five percent of that total, you have a concentration worth actively managing. If it represents fifty percent or more, it is the dominant financial risk in your life, regardless of how everything else is structured.
Question two: What would happen to your standard of living if this position went to zero?
This question is uncomfortable, and it is supposed to be. It forces a separation between confidence in an asset and dependence on it. An executive who is highly confident in their employer’s prospects and whose family’s financial security would not be materially threatened by a complete loss of that position is in a different situation than an executive who is equally confident but whose retirement, estate plan, and children’s financial futures all run through the same stock. Confidence does not eliminate the need for protection. It just makes it easier to avoid thinking about.
Question three: Is the concentration growing or shrinking on its own?
For executives with ongoing equity grants, the concentration may be self-replenishing. New RSUs vest, new options are granted, new deferred compensation accumulates. If the pace of new grants exceeds the pace of diversification, the risk is growing even when it feels like it is being managed. Understanding the trajectory of the position — not just its current size — is essential.
Question four: What is the actual cost of the concentration?
This means modeling the risk explicitly — not in abstract terms, but in numbers. If this position declined by thirty percent, what would that mean for your total net worth? If it declined by fifty percent? If it became illiquid for five years? These scenarios are not predictions. They are the basis for a rational conversation about whether the expected return from maintaining the concentration is worth the risk being accepted to achieve it.
4. The Tools Available for Managing Concentration Risk
Once the questions above have been answered honestly, the conversation can turn to strategies. There are more tools available than most concentrated holders realize, and the right combination depends heavily on the nature of the position, the tax situation, and the owner’s broader financial plan.
Systematic diversification. For publicly traded securities, the simplest path to reducing concentration is a disciplined, rule-based selling program. Rather than making a single large sale — which concentrates the tax event and requires a definitive market call — a systematic program spreads sales over time, reducing both concentration and the psychological burden of any single decision. When structured through a 10b5-1 plan for executives subject to trading restrictions, this approach also provides legal protection and planning certainty.
Exchange funds. For investors with large positions in a single publicly traded stock, exchange funds allow the holder to contribute shares to a fund alongside other concentrated holders, receiving a diversified interest in the combined pool. The contribution is structured as a tax-deferred exchange rather than a sale, which means the embedded gain is not recognized at the time of the transaction. Exchange funds have specific eligibility requirements and holding periods, but for the right situation, they are a meaningful tool.
Charitable strategies. For owners with philanthropic intent, a concentrated position can fund charitable giving in a way that is significantly more tax-efficient than selling shares and donating cash. A charitable remainder trust or a donor-advised fund funded with appreciated shares allows the donor to receive a deduction, avoid immediate capital gains recognition, and deploy the full pre-tax value of the position for investment and eventual charitable distribution. The tax math on this approach is often compelling even for donors whose charitable intent is modest.
Hedging strategies. For large concentrated positions in publicly traded securities, certain hedging instruments — collars, protective puts, prepaid variable forwards — can limit downside exposure without triggering an immediate taxable event. These strategies involve complexity, cost, and specific regulatory considerations for executives with insider status. They are not universally appropriate. But in the right circumstances, they allow an owner to reduce risk without selling, which can be the right answer when the tax cost of selling is prohibitive.
Life insurance as a complement to diversification. For ultra-high-net-worth families, large-death-benefit life insurance can play a structural role in managing concentration risk at the estate level. If a significant portion of an estate is illiquid — a business, a real estate portfolio, a concentrated stock position — insurance provides the liquidity needed to address estate tax obligations, equalize distributions among heirs, or simply protect against the forced sale of the asset at an inopportune time. This is not insurance as a generic risk management tool. It is insurance as a deliberate component of a comprehensive wealth plan.
5. The Timing Problem: Why This Conversation Keeps Getting Delayed
There is a particular irony in the management of concentrated wealth. The moment when the concentration is largest — and therefore when the risk is most acute — is almost always the moment when the owner is least inclined to address it.
When a company is performing well, selling feels premature. When a business is thriving, taking chips off the table feels disloyal to the enterprise. When markets are strong, the cost of diversification feels like leaving money behind. And when everything is working, the urgency of addressing concentration risk is easy to defer in favor of more immediate demands.
Then conditions change. They always do.
The owners and executives who navigate this challenge most successfully are those who treat concentration management as a standing priority rather than a reactive response to a problem that has already materialized. They build diversification into their plan before a correction makes it necessary, before a lock-up or trading restriction makes it impossible, and before a liquidity event creates the kind of time pressure that leads to suboptimal decisions.
The right time to address a concentrated position is almost always earlier than it feels.
Building a Plan That Reflects the Whole Picture
Concentrated wealth is not a problem to be embarrassed by. It is evidence of something that worked. The goal is not to dismantle what was built — it is to protect it, extend it across time and generations, and make sure that the risk that is no longer necessary is no longer being carried.
That requires a complete picture of the balance sheet, a clear-eyed assessment of where the risks actually live, and a plan that uses the right tools in the right combination for the specific situation at hand.
At Lindberg & Ripple, we work with affluent families, executives, and business owners to build that kind of plan — one that treats the full balance sheet as the unit of analysis, not just the liquid portfolio. The goal, always, is independent advice that serves the client’s long-term interest. That means naming risks that are easy to avoid naming, and recommending strategies that are genuinely appropriate rather than simply available.
If concentration risk is a part of your financial picture — whether it is visible or not — we welcome the conversation.
File # 5530822