Are you sitting on a large stock position? Is most of your net worth tied up in 1 or 2 stocks?
Did your grandparents buy you Disney stock when you were born and you have been holding it ever since?
Or did you inherit a large position when someone close to you passed away?
Having a large position in a single stock carries unique challenges. Even if the stock has done well, you may want more diversification, or have new financial goals that require a shift in strategy.
It’s important to understand that in the world of investing the riskiest investment is 100% of any one type of investment or 1 actual investment.
100% of 1 stock
100% of 1 bond
100% of 1 piece of real estate
Owning 100% of 1 thing exposes you to all of the risks associated to that type of investment.
Things like;
- For stocks, it can be business or market risks.
- For bonds, it can be interest rate movements or inflation.
- For real estate, it can be damage or vacancy.
Either way you are 100% exposed.
The smartest thing to do is to reduce the size of that position and diversify into other personal investments. The amount should be based on 1) your risk tolerance 2) your goals and objectives.
Another thing to consider is the tax implication of selling this position. You might need to sell it over time (if possible) to reduce the tax liability.
I understand that the one position might have performed well in the past but there is no guarantee it will continue. I also understand that there might be an emotional attachment to that position.
But it is in your best interest to evaluate your goals and objectives to see how this part of your net worth fits in and will it help you accomplish all that you want to do…
For example, if you plan on using this asset to buy a house in a short amount of time, holding on to 1 stock is the riskiest thing you can do…. If you need money for a down payment and the stock market drops 10%, 20% maybe even 30% that can greatly affect your ability to make that purchase!
It’s time to break up with your ONE LOVE and connect all your investments to your financial goals and objectives appropriately.
-Jared S. Friedman
