A single position can build remarkable wealth and, at the same time, become the biggest risk on your balance sheet. The discipline is deciding what to do about it before you’re forced to.
How success turns into concentration
It rarely happens on purpose. You take equity in a company you believe in, or you build the company yourself. It does well — sometimes spectacularly well. And one day the balance sheet shows that a single holding has quietly grown into most of your net worth.
This is a familiar story in Orange County. The same defense and AI companies drawing national attention have created a great deal of local paper wealth, much of it held by founders and early employees in private shares they cannot freely sell. Business owners know the dynamic in a different form: for most, the company represents the overwhelming majority of what they are worth, and it does not trade on any exchange.
The asset that made you wealthy is now the asset that can unmake the plan. That is not a reason to panic. It is a reason to be deliberate.
Two problems, not one
Concentration and illiquidity are separate issues, and a large single position usually carries both.
Concentration is the single-point-of-failure problem. When one holding dominates the balance sheet, your net worth — and sometimes your income and identity — rise and fall together. Diversification exists precisely because no one can reliably predict which individual company thrives and which stumbles, and the larger the position, the more a single bad outcome costs.
Illiquidity is the cannot-act-on-it problem. Private-company shares are commonly locked by rights of first refusal and transfer restrictions, so you may not be able to sell or rebalance even when you want to. Concentrated public stock can be sold, but a large sale triggers a tax bill that is easy to underestimate.
The tax bill hides in the timing
For a California resident, this is where good intentions meet a hard number. California taxes capital gains as ordinary income — with no preferential long-term rate — so a large gain can land in the state’s top bracket on top of federal tax. Stack the federal long-term rate and the net investment income tax on top, and a top-bracket seller can face a combined rate in the high-30s on a long-term gain. (Illustrative; your actual rate depends on your full return — model it with your CPA.)
The practical point is not “never sell.” It is that when and how much you sell in a given year drives the outcome. Recognizing a large gain all at once can push everything into the top brackets; spreading sales across tax years can keep more of it out of them.
Founders have an additional question worth raising early: whether their shares qualify for the qualified small business stock rules under Section 1202, which were expanded in 2025 and can exclude a meaningful share of the gain for stock that meets the requirements. That is a CPA conversation, not a do-it-yourself one — and it is best understood years before a sale, not weeks after.
A plan beats a reflex
Faced with a concentrated position, most people lean toward one of two reflexes. They freeze — holding everything out of loyalty, optimism, or a wish to avoid the tax. Or they dump — selling all at once the moment they can, just to be done with it. Both are bets disguised as decisions.
The disciplined alternative is unglamorous and effective. Quantify exactly how concentrated you are. Decide what a reasonable target looks like for your situation. Then reduce toward it on a deliberate schedule as liquidity allows, with the tax modeled in advance and the timing coordinated with your CPA and attorney. Where you already plan to give, gifting appreciated shares — often through a donor-advised fund — can advance the charitable goal and the diversification goal at the same time, though the new 0.5%-of-AGI floor on itemized charitable deductions makes the timing worth planning with your advisor.
None of this requires predicting the stock. That is the point.
The goal isn’t to be right about one company. It’s to make sure your family’s plan doesn’t depend on it.
A concentrated position is a good problem to have. It is still a problem — and like most problems on a balance sheet, it responds far better to a process started early than to a decision made under pressure. The work of quantifying the risk, modeling the tax, and building a measured path to diversification is the same whether your wealth sits in a private company, a founder’s stake, or the business you run. It just has to actually get done.
Key takeaways
• A single holding can grow into most of your net worth without any deliberate decision — and become your largest concentrated risk.
• Concentration (single point of failure) and illiquidity (cannot sell freely) are separate problems; large positions often carry both.
• Diversification matters because no one can reliably predict which individual company outperforms.
• In California, capital gains are taxed as ordinary income with no long-term break, so the timing and size of a sale drive the tax outcome.
• Founders should ask their CPA early whether their shares qualify for Section 1202 (QSBS) treatment.
• The disciplined path — quantify, set a target, reduce on a schedule with the tax modeled in advance — beats both freezing and dumping.
Common questions about concentrated positions
What counts as a “concentrated” position?
There is no single threshold, but when one holding represents a large share of your investable net worth, it is worth a deliberate look. The right number depends on your overall plan, your other assets, and how much of your income also depends on that company.
Should I just sell it all and diversify?
Selling everything at once is a decision with real tax consequences and its own timing risk. A measured, multi-year approach — modeled with your CPA — often keeps more of the proceeds working for you than a single large sale.
My shares are in a private company I can’t sell. What can I even do now?
Plenty. You can quantify the concentration, plan the tax ahead of any future liquidity, confirm whether QSBS treatment may apply, and make sure the rest of your balance sheet is built to balance the single illiquid position.
Why is California such a big factor?
California taxes capital gains at ordinary income rates, up to 13.3%, with no preferential rate for assets held long-term. For a large gain, the state bill alone can be substantial, which is why gain-timing matters so much here.
Can charitable giving help?
If you already intend to give, contributing appreciated shares — often through a donor-advised fund — can support a cause and reduce a concentrated position at the same time. The 2026 rules around charitable deductions make the timing worth coordinating with your advisor.
When should I start planning around a concentrated position?
Before a sale or liquidity event, not after. The most valuable moves — gain-timing, QSBS qualification, a staged diversification schedule — depend on time and are hard to recover once an event has happened.
This article is for educational purposes only and is not investment, tax, or legal advice. Consult your CPA, tax advisor, and attorney before acting on anything described here.
Diversification and asset allocation do not ensure a profit or protect against loss. No strategy assures success or protects against loss.
Brent Rupnow is a Registered Representative with, and Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Via Luce Capital is not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Via Luce Capital, and may also be employees of Via Luce Capital. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of Via Luce Capital.