Each quarter, we share videos on investment topics to help you better understand how we manage portfolios. This quarter, we start with an update on recent portfolio allocation moves, then discuss a tax-efficient approach to managing concentrated stock positions.
The continued run-up in gold prices has led us to trim gold positions in many client portfolios to maintain the targeted level of investment risk. Otherwise, as the year winds down, we are only trading as needed to minimize generating further taxable gains in client accounts.
Moving on to our portfolio spotlight for this quarter, we review a new strategy for dealing with concentrated asset positions in portfolios. A concentrated asset position is when a portfolio has an oversized investment, typically a stock like StockX seen here, that dominates performance and risk characteristics of the portfolio and limits portfolio diversification. It remains in the portfolio because, to sell it all at once, would generate an undesirable amount of taxes.
Tactics for dealing with concentrated positions include gradually selling the position over several years to spread out the tax bill, as well as donating shares to charity on a regular basis. Some investors are inclined to hold the position until it becomes part of their estate. That has tax advantages, but again, limits diversification, and is a risk because today’s highly valued asset may be tomorrow’s worthless relic—much like stock in Sears, Yahoo, or Enron is today.
But now, the long-short investment strategy used for years has been reconfigured into a loss-harvesting strategy that enables the transition of a concentrated asset into a diverse portfolio of stocks with minimal tax impact.
First, let’s explain what we mean by “long” and “short”.
By long, we are referring to the typical investment holding investors own and holding their portfolio. Investors’ wealth increases when the long position goes up in value. Often, in long-short strategies, investors expand their long position by borrowing against their existing holdings to buy more investments. This expanded long strategy can pay big rewards if values continue to rise.
Short positions act just the opposite, as they profit from a stock going down in value. An investor will borrow a security from a financial institution for a fee and then sell it. The investor profits if they can rebuy the security at a lower price, at a later date, and return it to the financial institution to close out the loan. Because the long position profits when prices go up, and the short positions profit when prices go down, long-short strategies have long been used by big institutional investors to make money in various market conditions.
Now, that long-short strategy has been modified to minimize taxes by providing a stream of losses that can be netted against the gains realized from selling a concentrated asset position.
Over several years, as the short and expanded long positions create losses, the concentrated position can be sold off in a tax-efficient manner and converted into a diverse stock portfolio. The strategy is quite flexible for one to exit any time. But, if held long enough, the concentrated position can be completely converted into a diverse portfolio of stocks with minimal tax impact. At that point, the short and expanded long positions can be closed out. Adding the diverse portfolio of stocks back to the original portfolio makes it easier to tailor a portfolio that meets the client’s needs for diversification.
Congratulations, you made it to the end. That’s a lot to digest. But the bottom line is, if you have a concentrated position that you would like to diversify tax efficiently, reach out to your Boulay financial advisors to learn more.
If you’re not a Boulay client but are interested in what we can do for you, email us at learnmore@boulaygroup.com or click the button below.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein. This is meant to be a reference/guide, individual circumstances can influence outcome, verify planning with accounting and financial professionals.
This information provided has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be complete analysis of the material discussed, nor does it constitute an offer or a solicitation of any offer to buy any securities, products or services mentioned. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Consult your financial professional before making any investment decision.
Indices are unmanaged and do not incur fees, one cannot directly invest in an index. Past performance does not guarantee future results. These opinions are based on our own observations and third-party research and are not intended to predict or depict performance of any investment. These views are as of the open of business on December 17, 2025, and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Diversification cannot guarantee a profit or protect against a loss. All investing involves risk, including the possible loss of principal. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.