“It really scares me when clients have done really well with a certain stock, and they tell me, ‘There's no way this isn't going to keep doing well.’ That, to me, is a red flag.”

For high earners at tech and growth companies, wealth often arrives not as salary but as equity. It accumulates quietly until a single position dominates the portfolio.

Our hosts, Natalie and Dan Slagle, call this the concentration trap, and with SpaceX going public, a new wave of employees may soon find themselves exactly here.

Enormously wealthy on paper, enormously exposed in practice.

The mechanics are one thing. The psychology is another.

Tax fear is the most common reason people don't sell. The capital gains bill feels like a certain loss, while the stock's future feels like a potential win.

But as Natalie puts it, don't let the tax tail wag the investment dog. A BlackRock study of the Russell 3000 over 38 years found that two-thirds of individual company stocks underperformed the index itself, and a third actually lost money.

What Dan and Natalie advocate is a plan built on systematic selling. Not price targets, but agreed-upon share amounts or dollar intervals.

Charitable contributions through donor-advised funds can absorb some of the tax drag.

Natalie and Dan remind listeners to always return to their actual goals. If an 8 to 10% return in a diversified portfolio provides you with the life you want, the concentration and the risk tied to it may not be necessary.

Key Topics:

• A Client Story: Millions in One Stock, a Couple at Odds (04:34)
• RSUs, ESPPs, and Stock Options (08:43)
• When the IPO Creates the Trap (15:33)
• Why People Don't Sell (18:47)
• BlackRock's 38-Year Study: The Math Against Single Stocks (21:52)
• Overconfidence and the "There's No Way This Fails" Mindset (24:57)
• RSUs and the Price Anchoring Problem (30:27)
• Building the Plan: Systematic Selling and the Tax Conversation (32:28)
• Three Reframes: Jimmy's Stock, the Fresh Start, and Your Goals (36:03)

Resources:

• The Hidden Cost of Holding A Concentrated Stock Position - Baird Private Wealth Management Research. https://www.bairdwealth.com/siteassets/pdfs/hidden-cost-holding-concentrated-position.pdf
• Boom or Bust; the surprising danger of Concentrated Stock – BlackRock https://www.blackrock.com/us/financial-professionals/literature/brochure/boom-or-bust-one-pager.pdf

Schedule a Free Consultation: Go to https://www.fyoozfinancial.com and click the button in the upper right-hand corner

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Natalie Slagle, CFP® and Dan Slagle, CFP® are the founding partners and lead financial planners at Fyooz Financial Planning https://www.fyoozfinancial.com/ — an independent firm dedicated to helping high-earning couples in their 30s and 40s confidently navigate the complexities of managing money together.

At Fyooz, they specialize in turning financial stress into strategy, guiding couples through everything from cash flow and investing to aligning money with shared goals.

Disclaimer: For updated disclosures, please visit https://www.fyoozfinancial.com/

It really scares me when clients have done really well with a certain stock and they tell me there's no way this isn't going to keep doing well to me, that's like red flag sirens going off. Welcome to Money Dates, the podcast that makes money conversations with your partner feel a little less taboo. I'm Natalie Slagle, a certified financial planner, and I'm joined by my husband and business partner, Dan Slagle, also a certified financial planner. Say hi, Dan.

Hello.

In each episode, we'll share honest stories and practical tips to help you and your partner feel more connected and confident on your financial journey, so grab your drink, get comfortable, and join us for our money dates. Hello, Dan.

Hi, Natalie.

What is going on in your world? Tell me, in my world. No idea. Enlighten me.

Wait, you actually don't have any idea? Well, you were just gone for a week at a conference, so maybe you actually don't know what's been going on in my life.

I was kind of being facetious, if that's the right word for this, but actually I was like, I don't feel like we've like talked this week since I've been back.

That's not true at all. We have talked, we have hung out many of nights this this past week, but yeah, it does feel like time is like very limited when it comes to like going to work, and then you know, the daycare pickup, exploring the interests of a two year old, and then she goes to bed, and then it's like you and I are like zombies on the couch,

right? I think people assume since we work together we're with each other all day and we're talking all day, but sometimes I'm like, what did Dan, what did you do today?

Oh, heck no. I mean, you, hey, you blame yourself, you were the one who wanted us to get separate offices, so that's why we're in two different locations.

Yeah, so we're always in a different. we never work physically with each other anymore, which I think has been good for our relationship and for our business, but I did want to share this fun purchase that you and I had recently, and we got a new couch, and the couch, I'll just say we got a Joy Bird couch, it's, you know, this nice reclining couch, and we paid $600 extra to get the middle section to recline, so usually it's just the edges that recline. It's a three seater, but I wanted to pay more, more money, because I figured if only the edges recline when we watch a movie, we're always separate, and I want to snuggle you, and like, I need more, I need more snuggles in my life. So I paid $600 to snuggle my husband more, and it worked, because last night I had both the middle, and then you had your side up, and we were snuggling and watching.

I think the issue, when it comes to snuggling versus the actual couch is like the content that we're watching on the TV, if it's snuggle worthy, you know, like you've been into like true crimes lately. We've been watching this Michael Jackson verdict on Netflix. I'm like, these aren't snuggle shows, these aren't snuggle type shows. So maybe it's not the couch, but the couch does help, and I love the couch so far. We've had it for what, a little under a week at this point, but you know it's interesting how you just like gravitate to your spot on the couch, right? Like mine is the end, I always love the end, and then now you're going to be in the middle because you want to snuggle next to me, and then like I'm just thinking to myself every night, like do we need to switch it up and like make sure one of us sits on the total far end, where no one ever sits, so like it gets equally broken in,

maybe. Yeah, I'll just always be on the middle, and then you pick which, which side you want to be.

Yeah, there you go. The only other like thing going on in my life is at the time of this recording, the World Cup, is it hasn't officially started yet. You can see I'm wearing my USA jersey. This is from their last World Cup in Qatar, but will you, will you know, at the time of this release, I'm hoping they're still in the tournament. Likely not, but we'll, we'll have to see what happens.

Daniel Cycle, believe in your country and your team, but yeah, probably not. Okay. Well, what are we talking about today, Dan? This is a topic you prepared a lot for.

Well, why? Thank you. I actually do prepare a lot of our topics.

I know we've talked about that. Okay,

today we're going to talk about the concentration trap. So, why would I like to say why owning too much of one stock is can be more dangerous than than you think, so that's that's the theme for today's conversation. I think it's, it's important, it's relevant, because it has come up so much with our client base, because a lot of our clients are employees, whether that's it at like an early stage startup that that has an IPO, or they. Been working at a company for a long period of time where the stock compensation aspect of their salary is enormous, and when a lot of the stock comes due exercises or vests, depending on what type of stock compensation it is, all of a sudden they're just left with a very large portfolio concentrated in one stock, and I feel like there's this thing in our industry where it's like no one ever just wakes up and is like, I need to call a financial planner and work with a financial planner, like there's typically an event, and I feel like a lot of our clients that event tends to be concern or worry about not having enough diversification within their net worth, because it's all tied, whether it's a company stock or like a legacy stock, maybe you inherited from a grandparent or a parent. These are the types of conversations we've been having more and more with our client base.

Yeah, absolutely. And you know what the big one is this summer is that's going to pertain to a lot of concentrated stock positions as SpaceX and all the employees there, and that going public. So, I think this is a really important topic, because it's always going to be a topic in our industry. There's always a company that just tends to have a really large portion of exposure in our clients' portfolios, so yeah, this time to dig in,

but let's dig in. Do you have a like story right off the bat with a client, like a recent example? Obviously, we won't share any personal information, but something that's come up in maybe more recent conversations with clients about a single stock concentration.

Yeah, we've certainly had a fair share of clients come to us with concentrated stock positions, and there seems to be a theme, you know, I think of one couple in particular where there was, it was a husband and a wife, and a husband worked for a company that was the stock, also the stock position that he had a high concentration is in, and it felt at first in our relationship that the wife was all about diversification. It was, you know, almost this this thing on their balance sheet that was keeping her up at night. It also was this thing on their balance sheet that made their balance sheet what it was. I mean, millions of dollars, right, in a concentrated stock position, which is incredible. They had the company that the husband worked for was doing really well, but she knew the other side of this story, and it's not that it always happens, but it does happen more often than I think people believe, in that people have a high, highly concentrated position, and it doesn't stay as high as it once was in the heyday, right. And so we had to come up with a plan that was comfortable, you know, that made the wife feel like, okay, there's a plan in place, we have a strategy, but we also had to honor the side that the husband was like, I'm not really ready to just diversify everything right away, and plus there's there's tax ramifications, right, and so we had to come up with this plan about how we can diversify for or liquidate out of this concentrated position, not just for their spending needs, but also just to fill up their diversification bucket as well, so I'm thinking about one client specifically, but we've had clients with Uber, Tesla, Apple, Amazon, and the list kind of goes on and on of these concentrated stock positions, clients being employees at these companies and getting themselves in a situation, for better, for worse, of the concentration trap.

Yeah, that's exactly right. So today I want to talk about really like why it happens, or how it starts off happening, the risk tied to having a high single stock concentration, and potential strategies to help our listeners mitigate it. If this is a problem that you're facing, or potentially someone that that you know, so to just to jump like right into it. Why concentration happens, so when we think about stock compensation for our client base that they're getting from their employers, we often refer to those type of compensation measures as the golden handcuffs, like your employer wants to keep you, because if you were to leave the company, then you're forfeiting all this potential stock, especially if the stock's doing well, like that's it's very.. I would imagine it's very hard to leave in a situation like that. So, a little bit just about like the basics of stock compensation. So, at least for our client base, we tend to see stock compensation in the form of three different categories, and these are the three biggest ones out that again we see. We have RSU, or restricted stock unit. So, a restricted stock unit is basically an award of shares of your company given as a, as a form of compensation, and in order to actually obtain the shares, you must typically meet certain conditions before the stocks are actually transferred. Or into your ownership, that's often called like a vesting schedule. So restricted stock is given to you through a vesting schedule, meaning maybe the grant or the stock grant that you receive, let's call it like 400 shares, and then they vest maybe every year for four years, for example, you're getting 100 each year on like the anniversary date, basically. So, RSUs are very common. I feel like this is actually one of the most common types of stock compensation that we tend to see. It gives you the right to ownership at the time of vest, and at the time of vest, you're actually paying ordinary income tax at that time based on the value of the shares and the shares that you're receiving.

Yeah, the one thing I like about RSUs is that it shows up on the pay stub, so we can quickly see, okay, how much is going to be added to your income, and then we can also go to the pay stub to say how much was withheld. And hot tip for those who have RSUs, your default withholding on the federal side tends to be 22% and a lot of our clients are in a much higher tax bracket, and so that withholding on the RSU is not enough. So we're either doing quarterly tax payments or we're changing that 22% to a measure that's more appropriate for our clients, but I think the thing that we've seen with RSUs is it's just this natural occurrence, right, because the vesting schedule happens, you hit that date, the RSUs are there, and so you have to be proactive, are you going to sell your RSUs or not, and I think it's those who have chosen not to sell, whether it's out of habit or out of they want that stock position to be a larger portion of their investable assets, and so it's those who aren't selling who are getting RSUs that we start to see this concentration possibly get to a level that we would deem as unadvisable,

yeah, yeah, absolutely. The other piece that you mentioned, with the withholding, some employers do allow you to change your RS or your federal withholding elections on your RSU, so that's something to consider. If the default is 22% but you know you're in the 30th percentile of the tax rate, then that could be something to look into.

We had a client who we've always been doing between 30 and 33% and for whatever reason, they looked at their withholding earlier this year, and they saw it was knocked back down to 22% but all of our liquidation strategy and our tax strategy, we've been planning and hoping for that 2% which they put in, and then for whatever reason it was brought back down. So don't set it and forget it, set it and check it with those withholdings, because they could default back to the lesser amount.

So the other type of stock compensation that that we see, I feel like a lot of clients take advantage of their employee stock purchase plan offered through their employer there or ESPP, so I'm going to use a lot of acronyms, but I will tell you what the acronyms are, because I don't like using just acronyms. Basically, the ESPPs allow employees to buy their company stock directly at a discounted rate, making it like a really attractive employee benefits, so you're buying the company stock through payroll deductions, and you accumulate funds over like a specified period of time, which tends to typically be between like an offering date and the purchase date, and then upon like the purchase of the shares, basically what tends to happen at that time is like the accumulated funds are used to buy the company stock, often at like a discount. Typically, we see 15% of the actual market price. So, ESPPs, I don't know if we need to get too much into these, are pretty straightforward in terms of receiving the discount, but again, this is like one example, is a lot of our clients, their employee stock compensation custodian is like E-Trade, for example, so these shares are going to accumulate in a brokerage account over time, and then I think it's the question of what do you do with the shares, right? And that's what we'll ultimately get to here in a little bit.

Yeah, yeah, it's not just about getting it, but the long-term strategy with it as well. Good point.

Yeah, yeah. And then the last form of stock compensation that we tend to see, stock options, so it's basically equity compensation granted by companies to their employees and executives. We tend to see this a lot rather than granting shares like directly via like the RSU. It gives you the right to buy the stock, so you typically, what will happen is, you, you're going to have like a similar vesting type schedule, you need to exercise the shares when they become available to do so, if they are in the money, meaning there's actual value associated with them, when you exercise the shares, you know, you can hold those outright, which again, a lot of. Clients do, so it's about understanding tax implications, but understanding again, how do we get closer to that? Maybe target spoiler alert, target stock concentration level that we hope for is like at most 10% wouldn't you say

yeah, 10% of your investable portfolio,

yeah, but it tends to be really hard when you again like, especially if you're your employer offers like all three of them, for example, and like you're an early stage employee, like you're going to really potentially see a lot of true value in in company stock.

Yeah, I was just thinking about this, like we haven't really differentiated between a private company versus a public company, obviously. Right now, we've, we've been talking about companies that are publicly traded, but a lot of times people will find themselves in this trap by no fault of their own, in the sense of maybe it's been private, you know, there hasn't been the liquidity event or the event that gives them the right to purchase the stock, or whatever it may be, and then all of a sudden there's an IPO. Well, it's because of that that their concentrated position put them in a place of vulnerability, and so I just wanted to highlight that, like we're not trying to put blame or anything for people being in this position, it's just about the planning around it and balancing the risk, because everybody's risk appetite with all of these types of things is is different, and so it's really interesting to see how people get in these scenarios, and a lot of times it's kind of out of their control.

Yeah, I think for me, like one example that sticks out with our our existing client base, we had a client that was very like early stage in a company that IPO, gosh, I want to say 2019 or 2020 and they had left the company, but the company went through some hoops to allow, typically, like, if you left your company, for example, in like 90 days, that's where a lot of the stock compensation doesn't exist anymore, but because he was in early stage, they actually, and I think there were some potential lawsuits involved, not directly with our client, but with, like, the company in general, they extended the window of which people could exercise some of their stock options. I just remember, like, this couple reaching out to us specifically and saying, like, there's a lot of real value now in these company shares. We want to come up with a strategy to help minimize the tax liability as much as possible, and like better understand how to use the funds right. And in their example, what they ended up doing is building, not building, but basically renovating from scratch a home, relocating, and and obviously that, that's a huge, that's a huge value add for them in terms of using this money, or this like windfall, I'll call it, like to truly align with their values and their purpose, and like what they ultimately wanted their dollars to be used for. I think there's a lot of uncovering that needs to happen through these exercises, in addition to the technical aspect of, like, what is the tax liability,

right? Exactly, it's really putting purpose to the dollars, to your point, and, and knowing this is going to be spent in this way, or it's going to be tucked away for something else, the specific things, it just kind of puts it in, it just makes it feel a little bit more real, rather than this kind of sometimes it's just an intimidating number that you're looking at, and so it can be quite paralyzing, but knowing, oh, I'm actually using this number to create the family life I want, or to make the donation I've always been dreaming of, whatever it may be to you, I think, kind of helps get past this decision fatigue around a concentrated stock position.

Yeah, I want to talk next about the actually a great segue, way to go, Natalie. I want to talk about the reasons why people don't sell.

Yes, we've like sprinkled

in some reasons, but I think this is this is the fun part of our job, because a lot of it is so behavioral at the end of the day. So, like, to me, there are several reasons why investors don't sell, especially concentrated positions. The first one is, like, most people, like, want to avoid a certain loss due to the tax consequences of selling, and I feel like the certain loss tends to be like the tax cost of selling.

Yes,

if you had your cost basis or the price per share at the original prices is very low, and then the company appreciates a lot, right? So you're paying potential capital gains tax on the spread, and I think people want to avoid as much tax liability as possible, but they oftentimes forget or allow the tax decision. What is that saying again?

Don't let the tax tail wag the investment dog.

Nice, nice. Okay, yeah. That's, that's a weird saying, but I, I get what it, where it's coming from, because I feel like the tax decision is very important, but a lot of people let it drive the investment decision, right. So, in my mind, there's a potential opportunity to, like, recoup some of the tax cost over time by building, like, a more diversified portfolio, and not, especially if you're, you know, we've all heard horror stories of companies that just skyrocket to the moon. I sound like Elon Musk, but, like, and then they just depreciate to nothing, and they've lost everything.

Yes, and we've seen it in our practice, we've seen it, I mean, just growing up in the industry, it's the hot stocks today are not the hot stocks in 10 years from now, they're that's never been the case. There's never been the clear winner from day one, whatever day one means to you. It is an ever-changing landscape. Dan, haven't we talked about this before, or I like brought it up to you one time that if you look back in a certain time period, and it's like a longer time period, like 10 to 15 years, and if you had to guess what stock did the best, nobody would have guessed it. I think it was Domino's, like Domino's stock did the best, and this is like table talk, this isn't real, but I'm pretty sure the outcome was Domino's. I just remember, like, hearing this and looking into it a little bit, but it was like that's the number one of this time period of freaking pizza place, which then I was like, well, I did order Domino's a lot back in my college days, so maybe I alone contributed. Maybe I

honestly, I don't remember this study at all. Maybe you heard it at a conference, you, you went to, I don't remember researching this, full transparency, but it, I think, I heard it on an

investing podcast, and, like, now that I'm like, I heard it through another podcast, because they were like, what, it

could have been the time period when they changed their crust, because that was, that was a good move, that was a really good move, but to your point, and we'll get back to why investors don't sell here in a second, but you brought up the examples, right? So, like BlackRock has done a study looking at over, like, the past 38 years, examining companies within what's called the Russell 3000 that's an index fund of the 3000 largest US publicly traded companies, and if you look back over the last 38 years, two thirds, or 67 I'll round up 67% of the stocks within the Russell 3000 Again, the 3000 largest US companies, publicly traded companies, underperformed the actual benchmark itself.

Whoa, you need to say that again, that's powerful.

Over the last 38 years,

38 years, got

it. Two thirds of the stocks within the Russell 3000 again the 3000 largest US publicly traded companies underperformed the benchmark itself, the index itself.

Okay, that's a lot of companies underperforming.

Yes, and if we slice up the pie even more, a third of those companies actually lost money. So, not only are we talking about underperformance in terms of like positive performance, but still not beating the benchmark. A third of those companies lost money,

so you have less money than you did 38 years ago.

Yes,

if you invested in that company,

sure. Okay,

so how do you interpret that data? What do you get out of that?

I think that just shows a combination of all the risk associated with holding a single stock, right? Like the biggest example we all know, and probably have studied or saw on the news, if it was during our time frame of being out of school is like classical example is Enron,

right,

that's just like the easy one you can always focus on, but like there's more examples out there, like think about, I want to go back like to maybe like two, like early 2000s or late 90s, and you think about like I think of two companies specifically, like Sears.

Sears, I don't even know

the last time I saw Sears. I don't even.. Sears doesn't even exist anymore. I don't know, but like a perfect example, right? Like it, like really started to peak, I would say like 2005 ish, or so, and then it's completely lost value. And then the same goes for Yahoo.

Oh, Yahoo, yeah, there's just

a lot of different companies out there that you can historically look at and say there have been amazing times, but it's hard for that journey to continue on long term, which is why we always advocate. Again, this isn't just this is just general thoughts, not specific guidance to anyone's situation, but that's always why we advocate for diversification, as opposed to single stocks, because you just don't know, and it's really hard going back to the reasons why people don't sell well. Before I do that, do you have anything else that you wanted to talk about in that part?

Yeah, yeah, I think I. Always feel like when we have this conversation with our clients who are a little bit older than us and kind of in their 60s or older, they tend to get the story a little bit because they've seen it actually happen. I think it can be really difficult to tell someone that Amazon or Apple or Tesla or SpaceX, even it's not going to always do as well. I should put in a video, because that seems to be a very popular one too. But we can't expect that there's not going to be competition, that it's not going to have hard years, or just do what happens to a lot of companies where it just doesn't keep up, and I think when you've been around long enough, you've, you've seen that story play out, and so it really scares me when clients have done really well with a certain stock and they tell me there's no way this isn't going to keep doing well, to me that's like red flag sirens going off, and I'm like, they're there. I am sensing an overconfidence in your investment decision, and I'm scared for you, and what that could mean long term. Because just as harmful as it is when you have a concentrated stock position, and it doesn't well doesn't do well, I think it can be just as harmful when it does extremely well, and you don't take your chips off the table, you don't realize what has happened, and you don't capitalize on what you know today versus what you think you know in the future. So, I think this can be really scary as far as our biases and overconfidence in a single company.

Well, you basically just said everything I wanted to say in terms of the next reason why people don't sell, and that was overconfidence, or an assumption maybe like the future will be similar to what has happened in the past, and I think yes, there's even more of an overconfidence issue, especially if it is like your employer, I just feel like you're tied to it a little bit more, and you're in the day to day, and there's like misperception around it, and I think like people are also just lured by the possibility of a big win, like they want a big outcome, and feel like their specific stock, especially if it's doing really well, is immune from a downfall, whether it's like the specific company or just a general market decline that will ultimately impact the company, and again, going back to examples, prime example number one, Enron, right, and that's like that's obviously like on the very dramatic side, but it has happened before.

Yes, but we need

to be aware that, like, and again, like, we know things may not be like they have been in the past, maybe there's better systems in place from a financial market standpoint, but you just don't know, is you just have to be comfortable taking that risk at the end of the day,

right? Right. And I think because of the position we're in as financial advisors, we have to do what we feel is in the best interest of the client, and that might differ from what the client feels is in their best interest, which I think could be a really powerful tool, is making sure you're having your own checks and balances checked, and we have to always evaluate what is most likely to occur, what is the probability of these occurrences, and because of our studies and our oversight on lots and lots of households over the years, we've just seen the worst actually happen. I think we tend to meet a client and we come in to be a little bit more conservative than they are, and so we talk about, you know, balancing all the risk there.

Yeah, yeah, and I think there's potential, like potentially a lot of regret that could happen if you own single stock that was doing really well historically speaking, and then all sudden, like you move your dollars into a more diversified portfolio, and it's just like it's not sexy anymore, it's not as exciting. You may see the stock continue to go up at a higher clip than what the the index funds might be doing, but like, what do you need at the end of the day? That's the question to ask yourself, like, where do you want this stock to get to, and why do you need it to get to where it's going, versus, like, can you have a more diversified, safer path that still is like safer in terms of investing, could still be like aggressively allocated, like annualized average return of the market, you know, eight to 10% whatever it may be, like that's usually good enough for a lot of people.

Yeah, it's kind of what we're supposed to utilize right when it comes to projection purposes, and I like to remind clients, if we were to diversify away from a single stock position, and that single stock took off for the rest of your life, and your diversified portfolio did what we needed it to do, give you an eight to 10% rate of return, you still met all of your financial. Goals, but then we're looking off in the distance, and we see that stock, and it's way, way up. We still didn't make the wrong decision with what we knew at the time of the decision. Now, if the opposite was true, and we said, okay, we're going to hold on to this concentrated stock position, and then that was wrong, and it tanked, that's the wrong. There is so much more harmful than the wrong of going to a diversified portfolio.

Yeah, yeah. Last reason I want to talk about irrational, where, like, people don't sell is the idea of what you talked about earlier, and specifically I tend to see it with RSUs a lot, because with restricted stock units, when the stock vests, you're taxed right away at ordinary income, but what a lot of people fail to do is like potentially sell the stock immediately to avoid any short-term capital gains, so capital gains tax on on that money and decide to hold on to the stock, and then, and we've seen this a lot with clients as well, so we, we are aware of when clients' vesting schedule is, and we'll check in, like, hey, did you sell your stock, and we have had several examples of where a client has not sold their stock, maybe they've just forgot to, flat out forgot to do it, and let's say the share price at the time of vest was $30 and now the share price is $20 because they release quarterly earnings, and they did not go as well. So, now the client doesn't want to necessarily hold, sell the stock, because they have a loss, they want the stock to get back up to $30 or vice versa. The stock is now appreciated to $40 and they think it can go higher. So, like, there's just a lot of pegging to certain prices that people will set once the opportunity presents itself, and the reality is stocks may never reach certain levels again.

Yes, price is not indicative to future performance.

That was a great disclaimer.

The price that we, that we're putting in our brains is arbitrary. You just made that up in your brain.

Yeah, so that's, you know, that I think that's again when it comes to stock compensation, that that's up there in terms of reasons why people don't sell. What we should talk about now is like, I feel like we've hit on like the types of stock compensation, right? The risk we just went through, the reasons people don't sell. We should talk about, like, the strategies to help mitigate some of the risk, like, if this applies to some of our listeners.

Yes, so you know, step one is to come up with a plan. Obviously, coming up with a plan with a financial advisor is a really good place to start, and that plan should incorporate, what are you going to do with the money? What type of risk are you comfortable with? What are the tax implications, the tax brackets, you know, those types of things that we're trying to stay into. And then start the plan. So, like, a lot of times for us it will be the systematic selling, so we're not selling based on price, we're selling based on an amount of shares we agree on, or $1 amount we agree on at this certain point, so maybe it's every month, maybe it's every six months, maybe it's once a year, again, that's going to be dependent on your needs and your taxes, but the plan for us has never been price, it has always been $1 amount or a share amount based on kind of the balance of that concentration. Another thing to kind of balance when you're coming up with your strategy here is, like I said before, the tax implications of things. So, not only we're talking about capital gains, well, there's long term and short term. Short term capital gains are going to be taxed at your ordinary income, so not as desirable. So, how do we make a plan if we want to try to hit that long-term capital gain status? There's also going to be net investment income tax, so that's the additional 3.8% tax if your income threshold is there. So, we have to kind of really feel like no one knows about

that tax,

the net investment income tax.

Yeah, I mean, people like outside of our industry,

I don't know if people pay attention or know that it's happening. It's, and it's sometimes it's just hard to avoid, because if you're having a concentrated stock position, like a lot of our clients, they're, you know, they're their income is one person is north of $300,000 and so they're going to be hitting that. There's no way around it, right? The net investment income tax, is that a reason not to sell? No, of course not. Remember, the tax tail cannot wag the investment dog. Now I'm like, am I getting that saying right? I remember the picture in, like, learning in class, and this, and my instructor drew, actually learned

that in class.

Yeah, he like drew a wiener dog, and then his the wiener dog's belly said investments, and then his cute little tail said taxes. So that's why I'm like, tax tail, wig, investment dog, like the tail shouldn't control it, but I feel like on a wiener dog, when they wag their tail, their body is everywhere. So maybe that wasn't a good example. Anyways,

I don't know, like the wiener dog from Toy Story. Like the slinky dog,

yeah,

that's a cute dog.

Anyways, okay, and there's.. we don't always have to keep the money, right? There's charitable contributions that we can do. I feel like if you listen to this podcast often, you know that we love ourselves a good charitable contribution opportunity, and liquidating a lot of concentrated stock is a really great opportunity to fund that donor-advised one. We've had lots of clients do this. It's satisfying. It's a great strategy. So, creating a plan that incorporates, you know, the taxes, the systematic selling. How are we going to fund our diversified portfolio? How are we going to fund our charitable needs to us like this. It's fun, like we're like, what we get the chance to really like create an awesome plan that our clients, they understand the risk that they're taking on, they understand the tax implications. These are the kind of things that that we love to do day in and day out.

Yeah, any other ones that come up, I think those are those are awesome.

No, I think that's good for now.

Well, I think we should, we should wrap it up, and I want to talk about some takeaways for our listeners, especially if this applies to your situation, or again, you know someone who this applies to, maybe they're a SpaceX employee, or they don't have to be SpaceX, but that's just the closest example I can think of to what's relevant in the news today, so that the takeaways I have, there's there's three primary like challenges, I'll call them challenges that I would, I would ask yourself if this applies to you. The first part is obviously before we get into the challenges, like check your portfolio and do the math and say, does any single holding add up to be more than 10% if so, that's where you likely want to start having conversations with a professional. If, let's say, in this example, you, you do have a stock that's over that 10% marker, that threshold that we like to personally set, like think about the stock in different, a different lens, like don't be stubborn, just think about it in a different lens, and I think the first one that I hope resonates is like, imagine the stock is not yours, Natalie, you be the person that has the 10% portfolio, just like envision yourself doing this. Okay, I just want to see your reaction and see what happens. Yeah,

so can I paint it? I have a million dollars in a portfolio, and 100,000 is in Apple stock. Okay, fine.

Great.

Okay.

Yeah. Perfect example. Imagine the stock is not yours. Like, pretend these investments belong to your friend Jimmy. You got a friend named Jimmy, and Jimmy asks you for financial advice. Is this a good use of my money to have 100 grand in Apple stock? Does that feel like a smart idea? Am I too concentrated? Like, what? Natalie, would you tell Jimmy?

I actually have

to answer that. Okay,

I was like, Jimmy first, what's your real name? No one's real name is Jimmy, anyways. Maybe

I don't know. Well, James, James is James was probably the name. Okay, the second one is just like starting from current day, like imagine you don't own your concentrated holding right now, but you were instead presented with the opportunity to buy the entire position right now equally to how much you have invested in that stock, and like, would ask yourself, would that be a good goal for your investments?

Right. Yeah,

and lastly, we hit on this all the time, but like, remember your goals at the end of the day. Some people don't like goals, but like, remember your like purpose at the end of the day when it comes to your money, and, and what you ultimately want to use it for, like, why are you investing your money? What is the specific intention of the wealth that you're creating? It's rare that, like, we want to have a specific number of shares, or, like, $1 value in a company, like, when we get away from that, and we think more about, like, what is the purpose of your wealth, and what's the purpose of where you're going with what you've built, and just ask yourself, like, does this concentrated position help you pursue what you're ultimately trying to achieve, or is there a potentially better way?

These are good questions. Thanks, Dan.

That's it, Natalie. Watch out for the concentration trap, everyone.

Don't let it get you, and if it does, you know who to call one 800 I'm just kidding. Thanks, Dan.

Okay, thanks, Natalie.

Bye

bye. Hey, if you've enjoyed this episode and are looking for personalized financial guidance, schedule a free complimentary consultation using the link in the description below. Natalie and Dan Slagle are the founding partners of Fyooz Financial Planning, a registered investment advisor. The information provided in this podcast. For informational purposes only, and should not be considered investment advice or a recommendation to buy or sell any securities. Investing involves risk, including the potential loss of principal. Advisory services are offered to clients or prospective clients where Fyooz Financial Planning and its representatives are properly licensed or exempt from licensure. For more information, including our disclosures, please visit our website at www dot fyooz financial.com