Personal Finance

I'm in my early 50s with a net worth of $8m and 65% of my money is in one single stock

Joey Frenette

Published: February 13, 2025 9:05 am

It’s not easy to sell your winners, especially if it’s responsible for a vast chunk of your portfolio’s overall gains. Indeed, buying with the intention of holding for the extremely long haul can be an effective strategy. However, one must not neglect rebalancing and derisking their portfolios. That not only means taking profits where there are profits to be had but trimming the at-risk names that are pricey and perhaps not as attractive valued as they were when you first bought into a stock.

Undoubtedly, growth narratives evolve over time, and with a dynamic stock price that could swing from severely undervalued to obscenely overvalued in a matter of months, it’s only shrewd to make the moves that allow you to fare the best moving forward. Remember, you’re looking to pilot your ship for the seas that lie ahead. And while it’s nice to have had a smooth ride behind you, it shouldn’t really dictate what your next moves will be.

So, as you set sails for 2025 and the second half of the 20s, perhaps it’s time to cut one’s risk without cutting into your return. Now, this can be rather tricky, especially if you envision hanging onto shares of a particular company for life. But for the well-being of your portfolio and your financial future, I’d argue that derisking is more than worth the effort and perhaps initial pain.

This Redditor has way too much single-stock risk—it’s time to rebalance ASAP.

In this piece, we’ll consider the case of an early retiree in their early 50s (congrats on achieving “fat FIRE”) who’s single with a very heavy allocation to stocks (around 95% of assets) and a concerning magnitude of single-stock risk. They’re feeling uneasy about their portfolio as it stands, given the risk profile, and are considering hiring a professional to manage their investments. First of all, I commend the Reddit poster for recognizing the shortcomings of their portfolio.

Personally, I’d strongly encourage gaining the services of a professional financial planner to bring their portfolio back into balance. Indeed, it’s never a good idea to have too much single-stock risk. Not in an era when it’s so easy and affordable to diversify into the S&P 500 through the many low-cost exchange-traded funds (ETFs) out there. 

What about capital gains tax?

While the Reddit poster doesn’t sound all too attached to the single stock that they’re heavily weighted towards, they are concerned about the tax implications of selling such a name. While selling out of an entire position would bring forth a huge tax liability, I do think there are other options worth exploring, including the gradual offloading of the position over time.

One doesn’t need to dump a holding all in one go. Instead, incremental selling in a manner to offset gains with losses elsewhere in the portfolio could make a lot of sense. In this case, a tax-planning pro may be able to help a great deal.

If there aren’t many losses to offset, I still think selling for the sake of a healthier, more diversified portfolio is the right move. At the end of the day, it’s far better to lock in a gain and pay the taxman than to run the risk of having a single stock, which comprises a ridiculous 65% of one’s net worth, implode, leaving you less or nothing to show for your investment.

Sure, the tax hit will hurt, but at the very least, you made money. And you’ll walk away from an investment as a winner. Undoubtedly, if the stock is overvalued and overly frothy, getting on the rebalancing sooner rather than later seems prudent.

The bottom line

Selling a stock for the sake of a healthier (more diversified) portfolio is never a bad idea, even if it means missing out on further gains. Having 65% of your net worth in a single stock isn’t just excessive; it’s potentially dangerous, especially if one isn’t feeling all too confident in the name or the concentration of their overall portfolio. I’d strongly encourage the person to hire help to get things back in order.