Why Divesting a Concentrated Stock Position Protects Long-Term Wealth

By: Matthew Morrow, Founder and President of Munroe Morrow Wealth Management

 

You’ve worked hard to build your portfolio. Do not let your years of dedicated savings balance on the performance of a single stock position.

 

Whether the position comes from employer equity, an inheritance, or a successful investment, concentrated holdings create a common illusion: If it has performed well, it will continue to do so. But decades of data and client experience show a different story.

 

Start With Your Objective in Mind, Not the Stock Price

The goal of investing is to meet your financial objectives. We work with each of our clients to define their individual goals. That can mean hitting a dollar amount savings threshold, purchasing a dream second home, fully funding a top-tier college education for your children — or a combination of all three.

Difficult financial decisions are often simplified when there is a clear goal set. If your objective is simply “more,” the target keeps moving, and it becomes easy to lose sight of what you’re working toward.

Ask yourself: If I had $10,000,000 in cash today, would I put it all into one stock?

The answer is always no.

 

When Price Replaces Purpose

The biggest mistake investors are making is allowing recent price performance to override long-term planning.

It may seem obvious that you would sell if you had the opportunity. However, we often see that investors feel like they are missing out on potential future gains instead of capturing a goal within reach.

 

A Case for Divesting

In a recent meeting, a client held a highly concentrated stock position that had increased significantly following a strong earnings report. The recent gains materially improved their ability to reach their long-term retirement goals.

Our recommendation was straightforward: trim approximately 20% of the position.

This would have locked in recent gains, created meaningful liquidity, and reduced risk without requiring the client to fully exit the stock. Taxes would be set aside, and the remaining proceeds reinvested in a diversified strategy aligned with their long-term plan.

The client chose not to act, concerned about missing out on additional upside.

Since that meeting, the stock has declined, reducing the value of the position by approximately $1,500,000. What was recently $3,500,000 in liquid assets is now closer to $2,000,000. This is a materially different financial picture. In practical terms, that difference translates to roughly $60,000 less per year in sustainable retirement income.

This is how price bias and fear of missing out quietly replace purpose. Instead of securing financial independence, investors begin speculating on short-term price movements, often risking core wealth for upside they don’t actually need.

You only have to get rich once. The key to wealth is staying wealthy.

 

Long-term wealth is not built by maximizing every dollar of upside in a single position. It’s built by protecting gains, managing risk, and staying aligned with your objectives.

 

Taxes Are a Cost, Not a Reason to Stand Still

Taxes are one of the most cited reasons investors hesitate to sell. Paying capital gains tax can feel like a loss, even when you’re locking in substantial profits.
If selling part of a concentrated position allows you to secure meaningful progress toward your goals, then the right question isn’t “How much tax will I owe?” It’s “What does this liquidity give me?”

A disciplined approach is simple:
• Sell enough to lock in progress
• Set aside the tax liability
• Reinvest the remaining capital in a diversified strategy aligned with your long-term plan

You’re not losing money; you’re paying for profits that bring you closer to financial freedom.

Divesting isn’t about missing out. It’s about securing your financial independence.

 

If a single stock position plays an outsized role in your financial future, it may be worth a second opinion. A disciplined review can help determine whether your current exposure still aligns with your long-term goals. Schedule a Conversation.

 

 

Helping Investors Manage Concentrated Stock Positions

Munroe Morrow Wealth Management works with individuals and families across the U.S. who hold concentrated stock positions, equity compensation, or have experienced liquidity events. Our approach is grounded in disciplined planning, risk management, and aligning investment decisions with long-term financial goals.

 

 

This content is for informational purposes only and does not constitute personalized investment advice.