How to Avoid the Concentrated Stock Trap After an IPO or Acquisition

An IPO or an acquisition is the moment years of equity turn into something you can actually spend. It is also the moment many executives make their most expensive mistake: they treat the stock as untouchable and let it sit as 60, 70 or 80 percent of their net worth. Sometimes it works out. Often it does not, and the people it happens to are not careless. They are loyal, optimistic and busy. The fix is a plan written before the deal, so loyalty is not what decides your retirement.

Why concentration is a trap

A single company can fail, be disrupted, miss a quarter or simply drift for a decade. A broad portfolio cannot do any of those things in the same way. Over long periods, a large share of individual stocks underperform the market, and a meaningful number lose most of their value. The problem is that the people holding a concentrated position almost always have good reasons to believe their company is the exception. Some are right. You cannot know in advance whether you are one of them, which is why we treat concentration as a risk to be managed, not a bet to be made. Our earlier article on concentrated stock positions covers the behavioral side.

Decide the target before the event

The single most useful thing you can do before an IPO closes is write down a number: the percentage of your net worth you are willing to keep in company stock once you are able to sell. For most clients it lands somewhere between 5 and 20 percent, depending on their other assets, their age and how much of their income already depends on the company. Then write down the schedule for getting there.

Making this decision before the stock has a public price matters. After the IPO, every sale will feel either too early or too late, and the stock’s daily movement will argue with your plan. A number written down in a calm month is easier to follow in a loud one.

Know the mechanics that control your timing

Lockups. After an IPO, insiders are usually barred from selling for about six months. Some companies release a portion early if the stock trades above a threshold. The lockup expiration is often a volatile day because many people sell at once.

Trading windows. As an insider, you may only trade during open windows after earnings. A 10b5-1 plan, adopted during an open window when you have no material nonpublic information, lets you set a schedule of sales that continues through closed windows. It is the standard tool for executives who want to diversify methodically. Rule changes in recent years added a cooling-off period before the first trade, so the plan has to be set up ahead of time.

Acquisitions. If your company is acquired for cash, the decision is made for you and the issue becomes taxes. If it is acquired for stock in the buyer, you have simply exchanged one concentration for another, and the plan still applies. Earnouts and retention packages add their own schedules.

Keeping the tax bill down

Diversifying a large position usually means realizing gains, and the tax bill can make people freeze. A few tools reduce the cost.

• Tax lot selection. Sell the highest-basis lots first and hold the lowest-basis lots longest. Shares from recent RSU vests often have little gain.
• Spreading across tax years. Selling across two or three calendar years keeps more of the gain in lower brackets and can soften net investment income tax.
• Qualified small business stock. If your company was a qualifying C corporation and you held the shares long enough, Section 1202 can exclude a large amount of gain from federal tax. Recent law changes expanded the benefit for stock issued after mid-2025. Founders and early employees should have their shares evaluated before selling anything.
• Charitable gifts of appreciated shares. Giving shares directly to a donor-advised fund or charity avoids the capital gain and produces a deduction. For people who give anyway, this is often the cheapest way to reduce a position.
• Exchange funds. These pool concentrated positions from many investors into a diversified fund without an immediate taxable sale. They have long lockups, costs and eligibility rules, and are only right for some situations.

Utah taxes capital gains as ordinary income at its flat rate, 4.45 percent for 2026, so the state cost is easy to estimate.

The question underneath the stock

Underneath all of it is a simpler question: what is the money for? A written plan that says what the proceeds will fund, a home, a child’s education, financial independence by a certain age, makes it much easier to sell a share of a company you love. It is why our executive financial planning work starts with goals before tax lots, and why the portfolio that results is built the way we describe on our portfolio management page.

Frequently asked questions

Written by Samuel Preine, Wealth Advisor, RJFS. Last reviewed: October 28, 2026.