When your best investment becomes your biggest risk

Hi {{first_name|Investor}},

Let me describe two people I hear from a lot.

The first has worked at a big tech company for eight or ten years. They've received RSUs — restricted stock units, shares of company stock that vest over time as part of their compensation — on a regular schedule, held most of them because the stock kept going up, and woke up one day to find that single position is now 30%, 40%, maybe 50% of everything they own.

The second picked a company they genuinely believed in a few years back — bought it, held it, and watched it run. It's not their employer. It's just a bet that went right. It hasn't hit panic territory, but it's quietly grown to 15–20% of their portfolio, and they're starting to wonder if they should do something about it.

Both people have the same underlying problem. The position that helped build their wealth has become the biggest risk in their financial life. This issue is for both of them.

Before you decide what to do, know how exposed you are. I use the "Traffic Light" framework:

Green (under 10% of your net worth in a single stock) — manageable. You don't need to take drastic action unless the stock is extremely volatile. Stay aware, but don't panic-sell.

Yellow (10–20%) — the Danger Zone. A 50% drop in that single position — which has happened to otherwise great companies — translates to a 5–10% hit to your total net worth in one move. Stop adding new money to the position and begin what I call "Reverse DCA." Regular DCA — dollar-cost averaging — means buying more on a steady, fixed schedule. The reverse is trimming on a fixed schedule: selling a small, predetermined amount each month, taking chips off the table without having to time anything perfectly.

Red (over 20%) — structural risk. The tail is wagging the dog. Your financial independence isn't diversified — it's entirely dependent on decisions made in one company's boardroom. The right response is intentional action, and the three strategies below are where to start.

Run this number before you read further. Where does your concentrated position land?

Once you know where you stand, the question is what to do about it. The generic advice — "just diversify" — is easy to say and hard to execute when most of the gain is sitting on top of a cost basis (the original price you paid for the investment) from years ago. The tax bill on selling is real, and it's often the biggest reason people stay stuck. These strategies are how you work around it. Each one has real tax and legal complexity — before acting on any of them, I'd recommend consulting a financial advisor, CPA, or attorney first for your unique situation.

Strategy 1: The Carve-Out (Direct Indexing)

A few years ago, direct indexing — building a personalized version of a stock index yourself, rather than buying a pre-made ETF — was only accessible to the very wealthy. In 2026, it's available to everyday investors at places like Fidelity and Schwab.

If you sell your employer stock and then buy a broad tech ETF to "diversify," you've likely just bought more of the same company in a different wrapper. A custom index lets you own "the S&P 500, minus [Company X]" — full exposure to the rest of the market without doubling down on the risk you already have.

A few things to know before you jump in: Fidelity and Schwab both offer direct indexing, but they charge management fees — typically 0.15–0.40% annually — so it's worth comparing what you'd pay versus a standard index fund. Platforms like Frec or Wealthfront also offer direct indexing, sometimes with lower minimums, more customization, or a different fee structure. The terms can vary meaningfully depending on your account size and how much flexibility you need. As with all the strategies in this issue, it's worth walking through the setup with a financial advisor before committing.

Strategy 2: The Zero-Cost Collar (The Insurance Policy)

This one is for the reader who genuinely believes in the company but can't stomach the thought of a 40% correction wiping out the wealth it took a decade to build. The Collar is the sleep-at-night strategy.

For those familiar with options trading, you can hedge — protect against potential losses — this way. Here's how it works: you sell a covered call (you agree to sell your shares at a higher price, capping your upside) and use the premium — the payment you receive for selling that contract — to buy a protective put (which guarantees you can sell at a floor price, limiting your downside). The two payments offset each other, so the strategy costs $0 out of pocket. You've traded away the "moonshot" potential in exchange for a guarantee that you won't lose more than, say, 10–15% of the position's value.

On timing: for a concentrated stock hedge, best practice is to use options expiring 45–90 days out — referred to as DTE, or days to expiration. The 45-day mark is common among active options traders, but for someone hedging a long-term position rather than running a trading strategy, 90 DTE is the more practical starting point. Longer expirations mean less frequent rolling, fewer transaction costs, and less active management. Some investors use LEAPS — options contracts with expirations a year or more out — for the protective put specifically, to lock in longer-dated downside protection. A financial advisor can help you find the right timeframe for your situation.

If you haven't touched options before, set this one aside for now — it's not the place to start. Options require a working understanding of how they're priced and behave, and executing a collar incorrectly can create unintended risk rather than reducing it. Most brokerages require you to apply for options trading permissions separately from a standard account, and approval isn't automatic. There are also per-contract fees that vary by broker. If this strategy interests you, get comfortable with the basics first, then revisit it with a financial advisor who can help structure it correctly.

Strategy 3: The Charitable Pivot (DAF or CRT)

The biggest barrier to selling, for many high earners, isn't indecision — it's the tax bill. This is how you work around it.

If you already give to charity, a Donor-Advised Fund (DAF) changes the math. Instead of selling the stock, paying capital gains tax, and donating the after-tax cash, you donate the shares directly to the DAF. You receive a tax deduction for the full market value, and the DAF sells without triggering capital gains at your level. The charity gets the same amount — but you keep what would have gone to the IRS.

For those thinking about the transition out of full-time work, a Charitable Remainder Trust (CRT) takes this further. You transfer the concentrated stock into the trust. The trust sells it tax-free, invests the proceeds, and pays you an annual income stream — typically 5–8% per year — for the rest of your life. What remains at your death goes to a charity of your choice. It turns a volatile, concentrated position into a steady paycheck, with a charitable legacy built in.

Both have real complexity — a CPA, financial advisor, and potentially an estate attorney should be involved before acting on either.

The three strategies above give you the main levers. These two help you pull them more efficiently.

The Reverse Barbell. A typical barbell strategy might look something like 90% conservative, 10% speculative — though the exact split varies by person, risk tolerance, and where you are in your financial journey. If you're sitting at 30%+ in a single volatile tech stock, you've already got far more speculative exposure than most barbell designs would call for, regardless of how yours is structured. The job of the rest of your portfolio isn't to be conventionally "balanced" — it's to be genuinely defensive, to counterbalance the volatility you're already carrying. That means leaning into short-term Treasuries (government bonds with short maturities, one of the safest asset classes available) or quality ETFs — funds that target companies with strong balance sheets, stable earnings, and low debt — rather than adding more growth stocks. Personally, I hold SCHD — the Schwab U.S. Dividend Equity ETF — as a counterweight to my high-beta growth tech positions. It's not a recommendation, just an example of the kind of stability-oriented holding that fits this role. You don't need more risk. You need to balance the risk you already have.

Tax-Loss Mirroring. When you trim a winning position, the tax hit is real. The cleanest way to soften it: look for something in your portfolio that's underwater and sell it in the same tax year. A realized loss offsets a realized gain, dollar for dollar. For every dollar of profit you take on your concentrated position, look for a loss to pair with it. This is called tax-loss harvesting, and it's basic portfolio hygiene that a surprising number of investors skip.

The reason most people don't manage concentration risk isn't that they don't understand it. It's that the position has been good to them. Trimming feels like betting against yourself, or against the company that helped build your net worth.

But the position isn't loyal to you. A stock doesn't know how long you've held it or how much you believe in it. The goal isn't to maximize one number on one stock — it's to build something durable. To reach the point where work is optional. Letting one company's stock price decide the outcome of that goal is the riskiest thing you can do.

Diversification isn't disloyalty. It's the whole point.

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Stay disciplined,

Koh