When to Break the “Diversify a Concentrated Stock” Rule
The financial planning textbook says you should never hold a big single-stock position. No Matter What? Really?
We disagree - some lives and balance sheets are not average.
Here’s our rule of engagement: pass the Core-Funded Test or don’t play. Your diversified core must fully fund your plan without the concentrated stock. If the plan still works when we exclude it, that position becomes risk capital, not core capital.
Let me be clear- This is not permission to avoid capital gains. The stock market will tax you more than the IRS will.
Also, be weary of why you are getting that advice. Is it because the stock may hurt your overall wealth plan or your advisor wants more assets in your core portfolio that they charge you to manage? Think about leaders like Bill Gates, Jensen Huang or Tim Cook—think their advisors tells them to cap conviction at 5%?
Passing the core funding test is not enough; the stock must clear our individual stock parameters. We must have the conviction that the stock is likely to beat its industry, its sector, and the broad market over time. Owning any individual stock adds risk that the core portfolio doesn’t carry: headline risk, business and operational risk, and financial and balance-sheet risk.
Going forward, there needs to be a clear reason to continue holding the stock. There are too many examples of companies that were darlings until they weren’t. GE in the early 2000’s comes to mind. Over time, there will likely be “change our mind” factors that no longer justify the position. A life changing event? Has conviction in the stock waned? Did the founder retire? There are plenty of reasons to sell… an arbitrary percentage is just not one of them.
This approach is not permission to ignore risk or avoid paying taxes. It is a plan-first framework that respects both math and behavior. It keeps the engine of your life—the diversified core—separate from the optionality of a great company you know well.
If your core already funds your future, a concentrated position is fair game—and often smart. We set the guardrails, define the triggers, and when they fire, we act—no stories, no stalling. That’s how exceptional lives break a bad “rule” without hiding behind arbitrary caps.
If you’re being told to sell your stock to maintain a cap, your next move isn’t a trade—it’s an advisor review.
Let us show you how our flat fee, advice only model is truly different.
