Strategies to help preserve and diversify

O'Leary NYC

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High net worth investors may hold large, concentrated stock positions. While the risks of holding a large portion of personal wealth in a single position are reasonably apparent, it is often challenging to determine the best way to mitigate these risks, often due to potential tax consequences or psychological affinity for the stock. 

Here are four potential strategies to help preserve or diversify a concentrated equity position:

  • Hedging—an Equity Collar may be appropriate for investors who wish to protect the value of a concentrated equity position against downside risk, yet continue to participate in some of the potential stock price appreciation and dividend income (if any)
  • Monetization—Prepaid Variable Forward may be used by investors who wish to achieve the economics of an equity collar and also generate immediate cash proceeds (for investment spending or other liquidity needs)
  • Tax-efficient gifting—through Charitable Remainder Trusts enables investors to transfer highly appreciated assets to an irrevocable trust in exchange for a cash flow stream without generating an immediate capital gains tax or net investment income surtax on the entire embedded gain
  • Diversification—through an exchange fund a solution for achieving broad equity market diversification of a concentrated equity position, along with potential tax deferrals

These advanced solutions can be used to help reduce your exposure to a concentrated position, each with its own benefits that may suit your particular situation or set of goals.



Tax-efficient gifting


This article outlines some of the strategies used to help preserve or diversify a concentrated equity position. It provides an overview of sophisticated and complex strategies, which must be evaluated based on the investor’s individual needs in consultation with financial, legal, tax and other advisors.


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