CONCENTRATED STOCK

Concentrate to Build Wealth. Diversify to Preserve It.

BakerAvenue employs a multi-disciplinary approach that strives to optimize the value of concentrated stock positions. We encompass solutions for strategic diversification, hedging, income generation, and tax minimization. Through a synthesis of Technical, Macro, and Fundamental disciplines, we guide clients through the complexity of unwinding a concentrated stock position while simultaneously working towards maximizing its potential value.

A Multi-Disciplinary Approach

  • Strives to optimize the value of concentrated stock positions.
  • Encompass solutions to diversify or hold, minimize taxes, generate income, and reduce risk.

MONETIZE
  • Our investment philosophy helps to protect your wealth and preserve your desired standard of living.
  • Example: Explore divesting and monetizing assets and employ strategic diversification of your concentrated stock position.
GIVE AWAY
  • Create a tax-efficient philanthropic giving vehicle and process that aligns with your values and goals.
  • Example: Establish an annuity or Charitable Remainder Trust (CRT).
RETAIN
  • Strive to reduce risk.
  • Example: Actively hedge with protects puts or potentially eliminate hedging costs.
 
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BakerAvenue Concentrated Stock Management Services

Diversification and Monetization

Growth: A portfolio mix to maximize returns, often with much higher risk tolerance and volatility, that could have higher turnover and less tax efficiency.

  • Momentum and growth stocks
  • Emerging markets
  • Alternative investments: Private equity, venture capital

Legacy: To pass on to future generations or beneficiaries. The goal is to protect the purchasing power of the underlying assets, but not necessarily to produce the highest return possible.

  • Growth equities
  • Real Estate
  • Bonds
  • Natural resources / commodities
  • Absolute return strategies

Lifestyle: To produce disposable income and growth to protect purchasing power. These assets have moderate risk and return goals.

  • Dividend-paying stocks
  • High-quality stocks
  • Taxable / Municipal bonds
  • Income-producing real estate
    Strategic Objectives
    Strategic Objectives

    Tax-Reduction Strategies

    Objectives:

    • Strategically maximize tax implications for your concentrated stock.
    • Ensure maximum tax benefit is taken for philanthropic giving.

    Process:

    • A review of your prior year’s tax returns to build a comprehensive tax picture.
    • Evaluate all of your stock compensation awards to ensure that, going forward, diversification is achieved in a tax-optimized manner with particular regard to Same Day Sale vs. Exercise and Hold decisions—when to exercise and maximize long-term capital gains rates.
    • Forensically track all AMT that is incurred to ensure timely recovery of AMT credits in subsequent years.

    Tax-Loss Harvesting:

    A process that can be done with any type of capital investment at any time of the year.

    Source: : BakerAvenue, Aperio Group
    Source: : BakerAvenue, Aperio Group

    Potential Solutions:

    • Understand the benefits of a Charitable Remainder Trust (CRT) solution to defer taxes on stock diversification strategy. Benefits include: upfront tax deductions on the charitable donation component providing a platform to favor charitable causes and significantly deferring capital gains taxes.
    • Use lifetime gifting strategies that use today’s historically high Unified Estate and Gift Tax Exemption amount ($11.70 million/per person) to avoid Gift Tax and Estate Tax, and integrate income and capital gains tax planning into your overall estate plan.
    • Proactively anticipate the impact of proposed tax changes of the new administration in order to optimize tax reduction strategies.

    Gifting and Philanthropy

    Charitable giving enables you to diversify concentrated stock positions and manage taxes while supporting causes you care about.
    Charitable giving enables you to diversify concentrated stock positions and manage taxes while supporting causes you care about.

    Generating Income

    While traditional hedging approaches employ a static “hedge-it-and-forget-it” mentality, we believe in an active approach to optimize the value of the concentrated stock position.

    • We aim to hedge concentrated stock positions when fundamental and technical trends are weak but may remove hedges when fundamental and technical trends are strong, allowing the position to potentially gain in value.
    • This strategy is a more opportunistic approach that lowers hedging costs and enhances potential returns.
    • We use options strategies to create income from concentrated positions to safeguard the positions against substantial loss,
    Illustrative Purposes Only
    Illustrative Purposes Only

    Hedging & Reducing Risk

    Leverage options strategies to create income from concentrated positions to safeguard the positions against substantial loss.

    Overview

    • Collars offer minimum price level for sale (put) while retaining upside exposure to call strike (call) mitigation levels
    • Flexibility to select call and put strike prices to achieve desired payoffs and risk

    Potential Benefits

    • Upside participation to call strike price
    • Helps protect against significant declines on a stock below put strike price
    • Retain shares, dividends, and voting rights

    Risks and Considerations

    • Upside capped above call strike price (unless calls are bought back)
    • Exposure to losses down to put strike price
    Illustrative Purposes Only
    Illustrative Purposes Only

    Transitional scenarios described above are hypothetical based on possible financial needs and goals of a client(s). This material contains references to concepts that have legal, accounting and tax implications, and is not intended as legal, accounting or tax advice. Information presented is believed to be factual and up-to-date, and are subject to change.Click here to view BakerAvenue's full disclosures.

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