A Wealth-Building Guide

When a single stock starts to represent a large portion of your net worth, it’s a fantastic (and rare) problem to have. But as your financial position grows, so does the importance of diversifying wisely and planning strategically, especially when taxes come into play.

At Members’ Wealth, we don’t approach this kind of decision lightly. When a client brings us a question like, “What do I do with this highly concentrated company stock position?” we assemble our team - a CFP, a CFA Charterholder, a JD, and others to find the best solution. Here’s a high-level look at the strategies we’d consider and coordinate with your accountants and attorneys.

Step 1: Assess and Set Diversification Guidelines

To start, we’ll take a close look at the size of your position and any upcoming stock-based compensation (options, restricted stock, etc.). For many clients, we recommend setting diversification guidelines—for instance, aiming to keep no more than 15% of your net worth in a single stock. This rule of thumb helps you capture gains when they’re strong while also managing risk.

Step 2: Create a Tax-Efficient Plan for Selling

One of the key challenges in reducing a concentrated position is managing the tax impact. We have several strategies to help you minimize taxes:

• Direct Indexing: This strategy allows us to harvest tax losses from other investments, offsetting gains from selling your company stock. For instance, if you've realized short-term gains earlier in the year, direct indexing may enable you to sell some of your concentrated position without increasing your tax burden.
• Charitable Giving: If you’re charitably inclined, donating shares before selling can be a smart move. You receive a tax deduction for the fair market value and avoid capital gains taxes on the appreciation.

Step 3: Explore Advanced Wealth Strategies

For those with significant concentrated positions, there are additional complex strategies worth considering:

• GRATs, Family Limited Partnerships (FLPs), and Trusts: These structures can be powerful tools for transferring wealth to the next generation while minimizing estate taxes.
• Insurance or Annuities: This could be an opportunity to reinforce your insurance coverage, set up future education funds, or secure funds for life events like weddings and dream travel.

Step 4: Diversify Into New Investments

Selling your company stock doesn’t mean “going to cash.” Instead, consider reallocating into a diversified mix of assets, such as:

• Equities and Bonds: A diversified portfolio with multiple securities can help spread risk.
• Real Estate, Private Equity, and Other Alternative Investments: These can add another layer of diversification and growth potential.
• Personal Assets: Buying a shore house or family compound is another way to create memories while maintaining an appreciating asset—after all, you can’t build family traditions in company stock, but you can at your very own “Natera Ranch.”

Step 5: Evolve and Plan for Future Generations

As your wealth grows, it’s normal to feel a mix of excitement and a bit of pressure. Some clients worry about talking to friends and family about their financial success or the responsibility that comes with it. But this is where we specialize. Our team will help you navigate not only the financial decisions but also the lifestyle and legacy decisions that come with newfound wealth. Revisiting your estate planning may include gifting, trusts, or philanthropic endeavors that preserve family values and traditions for generations.

Final Thoughts

Congratulations—you’ve made it to the “major leagues” of wealth. But as we’ve seen, the key is to stay on top of your strategy. Think of icons like Michael Jordan, Shaquille O'Neal, or Magic Johnson—who grew their wealth beyond sports—rather than cautionary tales like Tyson, Iverson, or Dykstra.

As you move forward, remember to keep evolving your plan, work with your team of professionals, and protect the value you’ve created. With a solid strategy, you’re not only setting yourself up for life, you’re creating a lasting legacy for generations to come.

Investment advisory services offered through Member's Wealth, LLC, a registered investment advisor. The Dow Jones Industrial Average (DJIA) is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The S&P 500 index is designed to be a broad based unmanaged leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe or representative of the equity market in general. The National Association of Securities Dealers Automated Quotations (NASDAQ) is an American stock market that handles electronic securities trading around the world. The Russell 2000 index is an index measuring the performance of approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States. Visit www.russell.com/indexes/ for more information regarding Russell indices. The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Bloomberg US Aggregate Bond Index, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

About the Author – Dane Czaplicki, CFA®

Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.

Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.

To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453. 

You can learn more about how we serve our clients by tapping the button below.

Investment advisory services are offered through Members’ Wealth, LLC., a Registered Investment Advisory Firm.

Registration with the SEC does not imply a certain level of skill or training. We are an independent advisory firm helping individuals achieve their financial needs and goals

Members’ Wealth does not provide legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences.

This commentary reflects the personal opinions, viewpoints and analyses of the Members’ Wealth, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Members’ Wealth, LLC or performance returns of any Members’ Wealth, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Members’ Wealth, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results

Copyright © 2023 Members' Wealth LLC