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Financial Planning
May 7, 2020
Does Your Portfolio Need PPE (Personal Protection Equipment) Due to Single Stock Risk?
By Lisa James & Lori Zager
The creep can be insidious. Restricted stock units, options, inherited stock or a growing position due to outperformance can all contribute to being overly invested in a single company stock. Regardless of how it happens, excessive single stock risk can blow up your financial plan.   

According to a recent J.P. Morgan study, from 1980 to 2014, over 320 companies were deleted from the S&P 500 for business distress reasons. Over the same time period, about 40% of the 3,000 largest companies suffered declines of more than 70% from their peak value. Often, investors and even company insiders do not anticipate these declines. 

Although there is no set number for an acceptable amount of single stock risk, when one stock exceeds 10% of your portfolio, consider it a concentrated position. Young investors may decide the double-edged sword of single stock risk works for them, but what is acceptable will vary by age, risk capacity and risk tolerance.  A concentrated stock position in the company or industry where you are employed creates additional risk as you may lose your job at the same time your portfolio goes down.    

If a major decline in a single stock’s value will affect the success of your financial plan, it is time to create a strategy to diversify. Financial goals such as buying a house, saving for college, or building/maintaining a retirement nest egg make it prudent to pare your concentrated stock position. Yet, investors resist advice to reduce concentrated positions for many reasons:
  • Lack of time to devote to selling the stock               
  • Missed open windows to legally sell company stock
  • Lack of familiarity with alternative investments
  • Tax aversion
  • Emotional ties to the stock (if inherited)
  • Familiarity bias – you know your company well and think it will do better than others
  • Recency bias – your stock has done well recently, so you think it will continue to improve
  •  Regret aversion bias – you will be upset if you sell and the stock goes up
Have a Plan
Create a gradual selling plan at a certain price and/or over a certain time period. This process can mitigate the tax impact and reduce the emotions that come into play. Public company executives often sell stock through 10b5-1 plans, which allow insiders to create a trading plan where a preset date or price is used to trigger stock sales. You can institute a similar strategy for yourself! Further, if you currently receive employer RSUs on a regular basis, you can instruct your custodian to automatically sell your stock on vesting dates, stopping the accumulation process before you get overloaded. 

A major market decline, while clearly negative for portfolio values, can offer a tax efficient opportunity to diversify, especially if you previously had sizable capital gains in your single stock position. If, for example, you can sell your stock at a loss and reinvest the proceeds in a diversified fund, you create a financial trifecta – you maintain your market exposure, diversify your holdings and take a capital loss from a tax standpoint.

Act like a CEO
Since January 31st, Jeff Bezos sold $4.1 billion in Amazon stock as part of a 10b5-1 trading plan. It is complicated to evaluate and mitigate the risks created by concentrated stock positions, and good ways to model your ongoing exposure are not readily available, especially if your company distributes options, RSUs, or TSRUs. At 2X Wealth, we can help you develop your own plan using our analytical tools. 

Feel free to pass this blog along to friends and family who suffer from SSR (Single Stock Risk)! Call with any questions about how to proceed.

The content provided herein is for informational purposes only, and should not be considered advice that is specific to your personal circumstances. Nothing contained herein is intended to be a formal research report, or as a source of any specific investment recommendations and makes no implied or express recommendations concerning the manner in which any accounts should be handled.The information contained herein is not intended to be comprehensive, and there may be other factors and questions relevant to your own individual situation. Any opinions expressed in this material are only current opinions and while the information contained is believed to be reliable there is no representation that it is accurate or complete and it should not be relied upon as such. Investing involves risk, including loss of principal, and no assurance can be given that a specific investment objective will be achieved. You should consult a professional legal and tax advisor for any tax and estate planning advice prior to taking action.

2X Wealth Group is a team at Ingalls & Snyder, LLC., 1325 Avenue of the Americas, New York, NY 10019-6066  |  (212) 269-7757

April 15, 2020
Picking A Retirement plan option: To Roth or Not?

Nothing in this world is certain except death and taxes. One of the important decisions that faces everyone who is saving for retirement is whether to pay taxes now or later.

By Lori Zager & Lisa James
March 30, 2020
Congress Provides Improved Access to Cash in Retirement Accounts

How you may be able to take advantage of the new rules

BY Lisa James & LORI ZAGER
February 21, 2020
Women Will Bear the Brunt of the Retirement Crisis

A retirement crisis is brewing in America, and unless they make proactive changes, women will bear the brunt of the problem.

BY Lisa James & LORI ZAGER
January 20, 2020
Retirement Plan Changes for 2020

The SECURE Act went into effect on January 1, and contribution limits to workplace retirement plans have increased.

Lori Zager & Lisa James
November 21, 2019
Gifting to your loved ones with Uncle Sam’s help

If you are able, it is better to give assets to your loved ones while you are alive.

Lori Zager & Lisa James
October 31, 2019
Women & Divorce Part 1: The Intersection of Divorce and Your new financial Beginning

Change is never easy and embarking on the divorce process is no exception.

Lori Zager & Lisa James
July 26, 2019
How Much Money is Enough In Retirement?

Does a low interest rate environment blow up your retirement portfolio? 

Lori Zager & Lisa James
May 8, 2019
A Financial Blueprint for After Loss

No one wants to think about death, and I certainly never intended to be the poster child for being a young widow.

Lori Zager
October 12, 2018
How do you choose a financial Advisor

What to consider when choosing an advisor

Lori Zager & Lisa James
September 4, 2018
A blueprint to Put your estate in order

Estate Planning is an uncomfortable process, but taking the time to plan is a gift to your heirs.

Lori Zager & Lisa James
January 25, 2018
Estate Planning: 
Advance Directives and durable power of attorney For healthcare

My husband badgered me to read Being Mortal by Atul Gwande. He, like Gwande, was a physician and as interested in dying well as he was about living life to the fullest.

Lori Zager
January 3, 2018
January is Financial Health Month

Get your checkup!

Lisa James & Lori Zager
April 23, 2017
A Tribute to Auntie Di

On Friday April 14th, 2017 Diane Silver passed away. My daughters called her Auntie Di, and in reality she was more of an aunt to them than their own flesh and blood.

Lori Zager
March 2, 2016
The Forgotten Woman

In February 2016, I read an article by Reshma Kapadia in Barron’s (a financial newspaper) entitled The Forgotten Woman.

Read More
Lori Zager

The views and opinions expressed in the posts on this page are those of the author and do not necessarily reflect the position or views of Ingalls & Snyder, LLC.  Certain content on this page were originally  posted in a personal blog maintained and operated independently by the author prior to joining Ingalls & Snyder, LLC. 

The content provided herein is for informational purposes only. The statements are believed to be accurate at the time of writing, but tax laws may change. The statements provided do not contemplate each individuals unique financial circumstances. Therefore, you should consult a professional legal and tax advisor for your estate planning needs before taking action.