Planning Around a Concentrated Position

More wealth doesn't require more complexity

In this We Talk Money interview, Nikki Dunn and wealth advisor Mark Cecchini discuss a familiar problem: one successful investment or an employer's stock becomes a large part of someone's wealth. The next decision affects far more than the portfolio's return.

Mark challenges the idea that growing wealth automatically calls for more private investments and complicated structures. Someone whose company equity and property are already hard to sell may need the rest of the portfolio to provide liquidity. Nikki agrees that extra complexity can bring risks of its own.

Separate risk tolerance from risk capacity

Nikki distinguishes the emotional willingness to hold a volatile asset from the financial ability to withstand a loss. Mark connects concentration decisions to the person's plan: if the holding falls sharply, can the remaining resources still support their goals?

The answer depends on more than a percentage. Employment income, spending needs, other assets and the ability to sell all affect the exposure. Mark discusses concentration guidelines as starting points, rather than a universal allocation rule.

Borrowing against a concentrated holding can add another dependency. Mark raises the example of salary, benefits, company shares and debt all tied to the same employer. Nikki adds that the asset being borrowed against, the size of the loan and the use of the money change the risk. Borrowing to avoid a sale doesn't make the underlying exposure disappear.

Give part of the wealth a specific job

Mark describes selling enough to fund particular goals while retaining some exposure. Nikki connects that approach to scaling out of a winning investment. Both recognize the emotional difficulty of reducing a position that created the wealth, especially while peers continue to celebrate rising prices.

They also discuss cash flow. A high net worth doesn't remove the need to understand spending or decide what incoming money is for. Before a liquidity event, a plan can identify tax reserves, near-term needs and longer-term investments.

Complex tax and hedging strategies have their own constraints and may leave concentration risk in place. The practical starting point is to map what a large loss would change in everyday life, then discuss the available choices with professionals who understand the full situation.