How much of my net worth should be in a single stock?

A common practitioner convention caps any single name at 10% of investable net worth — sized so a −50% event in the stock costs at most 5% of the total pile. Employer stock argues for a stricter cap, since the same company already pays the salary.

What does it cost in taxes to diversify a concentrated position?

The excess above your line, times the fraction of it that is gain, times your all-in capital-gains rate — federal long-term rates run 15–20% plus 3.8% NIIT at higher incomes, plus state tax. Staging sales across tax years and charitable gifts of appreciated shares can cut the bill materially.

What happens to my net worth if my concentrated stock drops 50%?

The hit equals your concentration times the drawdown: at 40% of net worth in one name, a −50% year removes 20% of everything you have. At the 10% line the same event costs 5% — the difference is the whole argument for trimming.

Concentrated Stock Position Calculator — Trim or Hold, With the Tax Bill

The pile, as it stands

The conversation’s numbers

What a bad year costs, at every concentration

The hit to your whole net worth if the name has its bad year, at each level of concentration. The dashed line is the house line; the dot is you today. Hover to explore.

Hold, trim to the line, or sell half

For the adviser conversation

How we calculate

What is included

Concentration is the position over investable net worth, read against the house line (10% by convention — some desks run 5%, some 15%). The tax toll of trimming multiplies the excess above the line by the gain fraction (how much of each sold dollar is profit) and your all-in rate on gains. The stress line applies the type’s drawdown — −50% single name, −35% sector, −20% broad index — to the position and reads it against the whole pile, before and after a trim.

What is estimated or left out

Everything that makes this decision interesting in practice: staged sales across tax years (two Decembers beat one), collars and protective puts, exchange funds, opportunity-zone rolls, charitable stock gifts and donor-advised funds (which erase the gain entirely on the donated shares), and step-up at death — the reason some low-basis positions are held forever on purpose. Those are exactly the adviser conversation; this page prints the numbers to bring to it.

The formula, in plain words

concentration = position ÷ net worth
excess        = max(position − line × net worth, 0)
gain fraction = (position − basis) ÷ position
tax to line   = excess × gain fraction × rate
stress        = position × drawdown (−50% / −35% / −20%)

Common questions

How much of my net worth should be in one stock?: The common practitioner line is 10% of investable net worth — drawn so that a −50% year in the name costs at most 5% of the pile. Employer stock deserves a stricter line, because the same company already writes your paycheck: the bad year that halves the stock is often the year the job gets shaky too.
Isn’t selling stupid if the stock keeps going up?: It might be — that’s the honest answer, and it’s why the page prints numbers rather than orders. The counter-arithmetic: the position got this big precisely by winning, concentration cuts both ways, and the graveyard of “it always comes back” names is deep. Trimming to the line isn’t a verdict on the company; it’s insurance priced at the tax bill shown above.
How do I reduce a concentrated position without a huge tax bill?: The toolbox: stage sales across tax years to stay under bracket cliffs, harvest losses elsewhere against the gains, gift appreciated shares to charity or a donor-advised fund (the gain evaporates), use the 0% federal bracket in low-income years, and for large positions ask an adviser about exchange funds and collars. Each moves the tax figure this page prints — bring it to that conversation.

Concentrated Position