• Peter Lazaroff:
  • Plancorp
  • The Long Term Investor
  • Grab Your Free Copy: Making Money Simple
  • Read Peter’s Article: Tax-Efficient Ways to Diversify Concentrated Stock
• Additional Resources Mentioned:
  • RPN Weekly Newsletter
  • Retirement Podcast Network
  • General Electric
    • Retirement Shock: Need to Find a Job After 40 Years at General Electric
    • History of GE

4 Ways to (Tax-Efficiently) Diversify Concentrated Investments

Taylor Schulte: This show is a proud member of the Retirement Podcast Network. In 1976, a man named Gary Zabroski started working for General Electric. The job paid well and provided a clear path for career development and growth. Gary told the Wall Street Journal, you had a job for life if you had gotten in there. General Electric was formed through the merger of Thompson Houston Electric Company and Edison General Electric in 1892. 

In 1896, just four years later, GE became one of the original 12 companies listed in the Dow Jones Industrial Average, where it remained part of the index for over 100 years. When Gary joined the company 80 years later in 1976, the stock was trading around $2 per share. It was a fairly slow and boring stock that didn’t really make any big moves until the mid to late nineties. 

However, just a small $5,000 investment in 1976 would’ve grown to nearly $3 million by the end of 2016, the year that Gary decided to retire after giving 40 years of his life to the company, Gary, like most employees, accumulated a healthy amount of GE stock throughout their careers.

And given the long-term success of the company success that these hardworking Americans directly contributed to holding onto their sizable allocation to GE stock as they transitioned into retirement did not seem reckless or careless, it was nearly impossible for any of them to imagine that around the corner, GE would experience an event twice as bad as Enron and would erase more wealth than the bankruptcies of Lehman Brothers and General Motors combined. 

The rapid unraveling began around the time of Gary’s retirement at the end of 2016 when GE’s stock was hovering around $150 per share. By the end of 2017, the stock price had been cut nearly in half, and by the end of 2018, the stock was trading at $32 per share. Two years into Gary’s retirement and his beloved GE stock was down nearly 80%. I never planned on retiring and having to go back to work.

A 61-year-old Gary said to the journal in 2018, it’s kind of scary. GE one of the most widely held US stocks wiped out nearly 150 billion of wealth in a 12 month time period. Zooming out, over a longer time period, almost $500 billion of GE’s market cap had been erased. 

Unlike Enron and Lehman and many more countless stories, GE’s losses were not caused by scandal or unethical behavior. It also didn’t go bankrupt. GE while now split into three separate companies is still around today as one of the largest 100 companies in the world. One of the major risks of a concentrated investment is that it can go to zero and the investor can lose everything. 

But GE’s recent troubles highlight a more common, sometimes overlooked risk. The risk that a great company with a long successful track record suffers dramatic losses during a time when you need your invested dollars most, and this risk is not limited to just individual companies, either investors who had the majority of their portfolio allocated to large-cap US stocks in the early 2000s experienced 10 years of negative total returns.

Welcome to Stay Wealthy podcast. I’m your host, Taylor Schulte, and today I’m talking about concentrated investments, specifically Peter Lazaroff, CIO of Plan Corp stops by to discuss three big things with me. 

Number one, how do you exactly define a concentrated investment? 

Number two, what are the risks investors may not be considering? 

And finally, number three, how do you tax-efficiently unwind and diversify concentrated investments? 

I also share a specific exercise that investors can go through on their own to determine if they should sell some or all of their concentrated holdings. To view the research and article supporting today’s episode, just head over to youstaywealthy.com/228.

Peter Lazaroff: Taylor, thank you for having me. And let me lead off by showing my appreciation for you and your audience by giving them some free copies of my book. So anybody listening today, that goes to peterlazaroff.com I have about a hundred copies in my office right now, so anyone who fills out that form, I’ll be sure to get you a copy of Making Money Simple. 

But today we’re going to get into some of the really good stuff, right? We’re going to talk about individual stocks.

Taylor Schulte: We are. I appreciate that offer, Peter. And while the book is helpful for people in all stages of life, including retirement and leading up to retirement, I found that the book is especially helpful for those younger professionals that are just getting started or looking to optimize their investments in their financial plans. 

So with the holidays coming up, you might take Peter up on his offer here and grab some free books and you might give them away to people in your life that might be able to benefit from it. So Peter, thanks for the offer. Thanks again for joining. But yes, we are talking about individual stocks today and specifically concentrated stock positions, what they are, how to deal with them, the challenges and how to unwind them. 

So maybe just start the conversation, what is a concentrated stock position? How exactly does someone know if their stockholding that they have is concentrated and potentially presents challenges and risks for them to address? What is a concentrated stock position?

Peter Lazaroff: There are a few ways that I like to think about this. If you want to assign a percentage of your net worth to an individual stock and say it’s 5%, I would say that’s a relatively concentrated position within not just your portfolio but your entire balance sheet. So that’s sort of a guideline, a starting point. Other people might look at it as if this position went to zero, it would materially change my financial plan in the way that I go about savings. 

Now, if that’s not 5%, but there is some dollar value, that’s also a generally pretty good gauge that this is a concentrated position. And these concentrated positions, typically I see people acquiring them either through employee compensation plans, whether that’s stock options or restricted stock units or any other kind of equity-based compensation. You’ll see that as the company grows and succeeds, employees find that a substantial portion of their wealth is tied up in that company stock.

Another frequent source of a concentrated stock position is inheritance. And even though there’s a step up in basis at death, sometimes people won’t sell positions because their parents or grandparents or whomever gave them the stock said to them at some point in time like you own this and you never need to sell. It’s done great for me. 

And so there’s some sort of emotional attachment there, but then also you have people who get individual stocks through a generation skipping trust where they don’t get a step up in basis. And then there’s the third really fun scenario that I tend to see people end up with concentrated stock positions and that’s when they hit a home run. 

People who are interested in the stock market will buy individual stocks and not everything can be a home run. In fact, I think there’s a lot of data that we can dive into that shows it’s the opposite. But occasionally you do find an Nvidia and it does grow to be an outsized portion of your balance sheet, and that is when you suddenly have something that I would say puts your financial plan or puts your balance sheet at risk.

Taylor Schulte: You mentioned the term step up in basis a couple times. I just want to make sure everybody’s up to speed in following us here. So as it relates to inheritance and these individual stocks, maybe just share a little bit about what a step up in basis is and why it applies to this conversation.

Peter Lazaroff: Sure. So if you had Coca-Cola stock purchased at $10 a share and it’s currently trading at $50 a share, your cost basis is that $10, the purchase price and the difference between the purchase price and the current price is what you would owe in capital gains when you die, assuming that the shares aren’t in a generation skipping trust, what happens is that the basis, the amount that the inheritors pay in the eyes of the government is the current value of the stock at the date of death. 

So if someone were to pass and Coca-Cola is trading at $50, then instead of the cost basis being $10, it rises up to $50. Basically eliminating the tax liability and allowing that person who inherits the stock to liquidate it and get into a more diversified portfolio, assuming that they don’t have any of this emotional that I was referencing earlier.

Taylor Schulte: So if I’m your beneficiary, and that’d be weird by the way, but if I was, and you own Coca-Cola stock and you’ve got a cost basis of $10, it’s trading at 50. If you were to sell it now today, you’d pay a large capital gains tax bill on that $40 gain there where if you didn’t sell it, you hung onto it, you passed away, I inherited it, it jumps up to that $50 basis. Now I can liquidate the entire thing and not pay a single dollar in taxes. 

Surprisingly, a lot of beneficiaries receiving stock or inheriting stock and getting that stuff up on basis still struggle to sell the stock, and we’ll talk about that momentarily. So that is an important piece there. These stocks stepping up in basis and it gets harder as you get older and older and older, you’re like, gosh, I really don’t want to sell this stock because if I do, I’ll pay taxes.

If I just hold onto it, my beneficiaries can avoid those taxes. One thing I do want to clarify to avoid any confusion when we talk about concentrated stock positions and what is a concentrated stock and how to know if you have one, when you look at account statements these days, many investors are using exchange-traded funds or ETFs, and these are often listed on the statements as stocks are often called equities on these statements. 

And so you might own, I don’t know, 2, 3, 4 ETFs and on your statement it might say that it represents 20% of your entire portfolio. Just remember that those ETFs, yes, they do trade like stocks, but most of these ETFs are broad-based. They own hundreds or thousands of underlying securities. So while you might have a 20% position in an exchange-traded fund, it may not necessarily be a concentrated stock position.

So today we’re talking about these individual companies owning a large percentage of these individual companies and them representing a big chunk of your portfolio. And to your point, Peter, if one of these companies went to zero, if it’s going to have a negative impact on your financial plan, then it is something that you would need to address. 

So now that we know what a concentrated stock position is, how we define a concentrated stock position and how people end up with these concentrated stock positions, let’s not talk about some of the risks posed by them. So Peter, what are some of the major risks posed by these concentrated stock positions?

Peter Lazaroff: Well, the most obvious one is that it’s just a lack of diversification. If you’re going to have a portfolio that’s dominated by one stock, you’re going to be highly vulnerable to that one company’s fortune. 

And the real thing that people miss out on or don’t understand about the risk of one company is it’s not necessarily the go bankrupt story. People look at a quality business and say, this company’s never going to go bankrupt. That’s not really the full issue. It is an issue, but I think it’s also the opportunity cost. 

So if you had dollars today, let’s go back to Coca-Cola. If I had a thousand dollars today, would I buy Coca-Cola or would I buy a total US stock market index? That’s what the opportunity cost looks at and what the research will show you, there was an academic paper from Harry Bess binder in 2018 that looked at all total returns on stocks.

There’s 26,000 stocks over the lifetime, and it found that just 4% of the stocks accounted for all of the net wealth creation over that period. So think about owning an individual stock. Sure, you may feel confident it isn’t going to go bankrupt, but is it one of the 4% that is actually adding to the return of the overall index? And here’s something even crazier when you look at it even closer. 

Only 90 companies out of some 26,000 companies accounted for half of that net wealth creation. And when you look at the median return of all those stocks, it’s negative 3.66.

So opportunity cost is a really, really big piece that I think people miss when they’re holding an individual stock and they just see the story around the stock that it’s a good company, but a good company is not always a good investment. It’s not just about it going bankrupt. It’s also if you had money today, where else could you put it?

Taylor Schulte: What are some of the other risks posed by concentrated stock positions, lack of diversification, opportunity, costs are really important ones. What are some of the others that come to mind?

Peter Lazaroff: Well, I don’t know if it’s so much of a risk, but it’s an inconvenience to some extent when you zoom out and look at the balance sheet. And I think when you’re thinking about investments, it’s really easy to just focus on the portfolio. I always like whenever it’s possible to zoom out and think about the whole balance sheet. 

And if you have a position that you’re unwilling to sell for tax purposes, for emotional purposes, you suddenly have reduced liquidity. And so if there’s reduced liquidity, then you suddenly are making different investment decisions or just even day-to-day spending decisions than what is probably mathematically optimal as well as maybe what’s emotionally optimal. 

But I mentioned tax implications. I mentioned the emotional attachment. I mean, I think those are the two big reasons people are reluctant to sell the concentrated stocks in the first place. I mean, the taxes is obvious.

Going back to our first example hypothetical of Coca-Cola, if you bought it at $10 and it’s trading at $50, you’re going to pay capital gains tax on $40 per share. And when you let the tax tail wag the dog, suddenly you’re not going to always make the best choice for your balance sheet. This emotional attachment, it is probably even stronger. 

So I think sometimes what I find in my day-to-day work with individuals is even if I can put the data in front of them that shows them mathematically it is optimal to diversify away from a concentrated position depending on how they came across that position, there is a strong emotional attachment. 

For example, if you’re working at a company, you went to its investor day and your managers gave you a great outlook for its future profitability and you feel like maybe you have some control or some sort of inside knowledge into the company, that makes you more equipped to decide if it’s a good investment or not.

But this sort of goes back to the whole thing where it’s, Hey, I’m not necessarily worried about any given company going bankrupt. I’m worried about, yeah, maybe your company’s going to do great, but the data would show you that investing in everything as opposed to one thing is probabilistically a better bet. 

The other thing I think when people hit a home run themselves, I tend to see people wrap some piece of their identity in the company. They identified a growth narrative that paid off, and there’s a lot of pride in that. 

And even just seeing the position on a statement is a reminder and an affirmation that you are smart and you picked a great stock and that is all true and maybe you can hold on to a little part of your concentrated stock, but it kind of goes back to the data for me where you look at what relative performance is on average across all stocks, and you look at what the probability of even a catastrophic loss is for any given stock. 

It just adds up to a place where I think you need to address these feelings with a trusted resource. Obviously you and I are biased. We feel like an advisor is a great objective resource, but talking to a spouse, a loved one can also help you sort of out fact from feelings in these situations.

Taylor Schulte: Yeah, it reminds me of a conversation I had this last weekend where making these decisions in the moment in real time is really challenging. All of a sudden you’re sitting on this concentrated stock position and there’s a large tax bill that you’re looking at and you’re like, I don’t know what to do with this. It’s a real challenge. It’s a real thing that investors are faced with. 

So I was having this conversation with a friend over the weekend who has a sizable position in Tesla stock, and Tesla has recently gone through a little bit of trouble, or at least the stock has gone through a little trouble and he lost a sizable amount of money. 

And I asked him this question, I said, first of all, why do you have such a large position in Tesla? And he gave me his thesis and why he believes in it so much and why he owns so much Tesla and that he thinks this stock will 10x from here.

And I asked this question, I said, at what point do you sell this stock? At what point are you going to say enough is enough? And he didn’t really have a good answer for that question. Like, yes, he thought that the stock was going to 10x, that was his thesis, but still it does get hard when stock doubles or triples or quadruples and when are you actually going to sell the stock? 

And so what I’m getting at here and what I think is really important in being proactive here is the importance of something called an investment policy statement, or at least documenting this position that I own or this position that I’m going to add to my portfolio at this point. If the position gets this large or it grows by this much, that’s my stopping point, that’s my time where I’m going to sell the stock. 

So having that written down and documented in advance can make a lot of these decisions much easier. But when all of a sudden it just shows up and all of a sudden you’ve got this concentrated stock position and you’re not sure what to do, to me, that’s when it does get really challenging and we can get really emotional about it.

Peter Lazaroff: And I feel like that narrative aligns with just about anybody else I’ve ever spoken to, whether they work for the company or they’ve invested in the stock themselves. And I think what’s hard for us in an advisor seat, whether we are actually someone’s advisor or just a friend, is you are poking at someone’s source of identity here. 

And I think it’s okay to have some of these things be a part of your identity, but what we are seeking to do in our roles, whether it’s in a formal advisor role or just when we’re doing our podcast, we’re just trying to help people make good decisions with their money. And I think what is unique about the opportunities for what you can do to offset some of these risks is a lot of do-it-yourself. 

Investors don’t really know what they don’t know. And there are some increasingly interesting ways to diversify away from a concentrated stock while either having no tax impact or drastically minimizing it. And so I think if you’re open to it, we’d love to go through some of those. We’ll keep it high level though for people because some of these I could walk out on if I’m not too careful.

Taylor Schulte: Yeah, let’s run through some of these. So for everybody listening, so Peter wrote and had an academic article published in the Journal of Financial Planning on this very topic right here. And so we understand what concentrated positions are, the risks that are posed, why people are reluctant to sell. 

So yeah, Peter, so anybody listening who has a concentrated stock position that are faced with this challenge of what do I do with this thing? How do I actually in an intelligent tax smart way unwind this position and diversify? What are some of the key strategies that they can consider to address this situation?

Peter Lazaroff: Okay, so I’m going to go from simplest to most complicated and occasionally, if it’s okay with you Taylor, I might equate people to the article. We can get a link in the show notes for people to check that out. And then after I get to the most complex, I’m going to probably drop a bomb with the most simple possible answer. Is that cool with you? Awesome, let’s do it. 

Alright, so tax loss harvesting is the most common strategy for diversifying in a tax neutral manner. And when you tax lost harvest, going back to our cost basis example, let’s go back to Coca-Cola and assume we bought it for $50 and it’s easily trading for $40. If we were to sell it at a loss, we get to take that $10 per share and apply it to any other gains that we recognize in that calendar year.

We also, as an added bonus, can offset $3,000 of ordinary income, but let’s not get too distracted by all that. If you don’t have losses, you can carry ’em forward. We’re not going to make this a huge tax episode, but tax loss harvesting is something that you really do need to be opportunistic about. 

One of the challenges that I point out in this journal article is that you sometimes have to wait for a bear market to do tax loss harvesting because as you mentioned, most people owned ETFs or mutual funds, and unless the entire market is down, your portfolio might not have any tax losses available. 

Enter the separately managed account, which at its simplest level is like when an asset manager opens up a mutual fund, but it’s just for you. It is your personal mutual fund and it owns anywhere from a few hundred to several stocks all tracking a broad market index.

But here’s the cool thing is that even when the market is up like 20, 30, 40% of the underlying holdings are actually down on the year. And anybody who has an individual stock portfolio who’s listening to us knows that is true because when you open your statement, there are some great years where everything up, but not everything is always up. 

And so a separately managed account can say, sell Coca-Cola when it’s at a loss and then buy Pepsi and able to get the upside and get that tax loss harvesting benefit and directly point it to you. And even cooler thing that you can do in this strategy. And then I’m going to stop there and let people dig into more details if they’re interested in the actual article is if you happen to have some cash, you can pair cash with a concentrated position and let the SMA manager build a completion index around that position.

That way instead of just having your Coca-Cola stock and a portfolio of diversified ETFs, you can use that Coca-Cola stock within a single fund, that personal fund that is just for you to at least be a little bit less because if you go out and buy the s and p 500, you’re just getting more Coca-Cola. 

How can we minimize that? We can put the Coke and the cash into an SMA, so that’s level one. The cost of those are coming down and down and down such that they’re really competitive with ETFs and mutual funds these days. Cost used to be a pretty prohibitive factor towards that approach. 

In the second approach, and we are going to get a touch more complicated here, and that’s contributing concentrated stock to an exchange fund. So unlike the mutual fund for one person that the SMA is an exchange fund takes investors with low basis positions and high tax rates and people will contribute, say their Coca-Cola stock to a portfolio of a whole bunch of other investors that had other concentrated positions, whether it was Tesla or General Electric or Bank of America.

What the fund will do is it will combine all of these holdings and start to try to mimic a total market index like the Russell 3000. Now here are some quick important qualifications and then I’m going to let you dig deeper on your own if you want to learn more. But exchange funds typically are only for qualified investors. 

So those are people with 5 million of investible assets or more. And the other thing is that there is a liquidity constraint. So typically you have to stay in the fund for seven years, otherwise you experienced some penalties. 

But here is what is cool is at the end of the seven year period, you’ve been earning the index return and then you get back a basket of securities, maybe 25 to 30 securities with your original cost basis, but you’re more diversified. So instead of just owning 5% of your net worth in Coca-Cola, maybe you have 30% of stocks that are relatively representative of say the s and p 500, and it’s spread out.

You haven’t gotten rid of the tax basis issue, but you’ve gotten that instant diversification. One more, slightly more complicated position than that, and then we’ll drop the bomb on the simplest of all of the solutions is using options to meet specific financial goals. 

And so for people who want that instant diversification that the exchange fund offers but can’t really handle the idea of locking up their capital for seven years, or as I commonly find, dislike the idea of giving up the dividend income for that seven years, one thing that you can do is you can build a costless option collar. 

Now again, I am going to save the details of an options collar for you who are interested to go into the journal article and read a little bit more. But basically you are selling calls and puts in a manner that neutralizes your individual stock position and trades its exposure for broad market exposure. 

Okay, so Taylor, those are the three increasingly more complicated ways where you can diversify a way without having any tax impact. Are you ready for me to drop the bomb on what I think is the simplest answer?

Taylor Schulte: I am ready. I just want to emphasize here that those three solutions are great potential solutions. They’re going to be most impactful for those that have a really low-cost basis and likely in really high capital gains tax rates. 

So this is dependent on the person and the situation. These don’t apply to everybody, but there are three great options for you to consider learning more about if you’re in this situation. But yeah, let’s talk about this fourth one here because I know it is the most simplest, but it is the most impactful as well and probably applies to the most people.

Peter Lazaroff: Yeah, because those three other strategies you likely need to work with an advisor to use them and so do it yourself investors. 

It would be a good excuse to hire an advisor, but if you really are looking for something that I think is just as impactful, it sounds pretty crazy and boring, but just gradually diversifying by recognizing capital gains, spreading out the sales that you can manage the tax impact, but basically also just acknowledge the fact that the overall market probabilistically is going to beat whatever your individual stock position is over a multi-decade period. 

And there is a beautiful table that someone at Plan Corp helped me make. I can’t even take credit for it. That’s in the journal article and it basically shows if you assume that the market is going to win or lose by a certain percent versus an individual stock, how long does it take to break even from recognizing that capital gain?

And what you typically see is if you’re thinking there’s going to be a performance difference of say like two-ish percent, and I can’t remember if I mentioned this earlier, but the median return on US stock over the 1926 through 2016, it was negative 3.66, and we know that the US stock market did roughly 7% after inflation over that period. 

So I’m going pretty conservative here using this table saying it would take nine to 12 years to break even. And it’s really truly buying into that idea that the opportunity cost of owning an individual stock is extremely high. And so when you think about what is the simplest thing, look, I think the SMAs, I think the exchange fund, I think options collars are not just intellectually beautiful, but they are highly effective strategies if you don’t want to pay taxes. 

But if you can sort of associate the idea that you might break even over a multi-decade period, maybe paying taxes isn’t such a bad idea and it keeps things incredibly clean and simple.

Taylor Schulte: Yeah. So one thing I want to add here on diversifying gradually, because I think that is probably, this is not a recommendation, but probably the right answer for most people. And that table is beautiful and it does illustrate some really important points and the data is hard to argue with. 

One thing I want to emphasize here is that if you choose this option that I’m going to diversify gradually, I think it’s really important to document what that actually looks like. It’s not a year by year decision. I’ll just see how I’m feeling next year and see how much I feel like selling at that time. 

But sitting down and putting together a plan over the next two years, three years, four years, five years, whatever it is, and committing to selling a certain amount of that stock each year on a certain day, otherwise you’re going to be in the same position every single year.

Gosh, what am I going to do? The stock kept going up. Is it going to keep going up? Maybe I shouldn’t sell. Should I hang on to it? Gosh, the stock just dropped a lot. Maybe I don’t want to sell any of it. I’ll wait for it to come back up. What if it never comes back up? So you get stuck in these really challenging positions and that’s where, again, this investment policy statement or just documenting what your diversification plan is and then committing to it. 

And that is where a third party can come in and help guide you, right? They can hold you accountable and implement this so that you don’t get in your own way. The other thing I want to mention here, going slightly off track but kind of applies to this, don’t let the tax tail wag the investment dog. Longtime listeners know that I’ll often play this game with myself or with clients or with listeners called the what’s worst game.

So in a scenario like this, let’s say that you have $1 million of Amazon stock and your cost basis is $500,000. So you’ve paid $500,000 for this Amazon stock, but it’s grown to a million dollars. So you have $500,000 of gains that you have to pay taxes on. 

Well, if you sell everything tomorrow, you say, I’m done with this concentrated stock position, I’m done with it, I’m going to sell it all. And you pay long-term capital gains taxes, and let’s just use a round 20% tax rate to keep things simple here. If you sell it all and pay long-term capital gains at 20%, well you’re going to walk away with $900,000. 

On the other hand, let’s say that you’re emotionally attached to this stock, you don’t want to sell it, or you’re just really convinced it’s going to keep going up. And let’s say that things don’t work out in your favor and all of a sudden Amazon stock drops by 30%.

Well now your million-dollar investment is worth $700,000 and all of a sudden that $100,000 tax bill might not be looking so bad. Now of course, Amazon stock could go back up, but it might not or it might take years and you may not be able to wait that long given your stage of life and income needs. And this goes back to your risks about the lack of liquidity with these individual stock positions. 

So I think going through this exercise and these kind of different what if scenarios or playing this, what’s worse game, me paying a tax bill now that yeah, it sucks or waiting, doing nothing, and all of a sudden I’m staring at a 30% loss in this individual stock, what’s worse? What’s going to be more painful to you? 

And by the way, I think we can all agree, Peter, that Amazon is a great company, but it doesn’t mean that they’re immune to losses, sizable losses. One of my favorite little-known stats is that in the late nineties, Amazon stock dropped by 95% and we’ve seen other great companies go through similar struggles as well. 

General Electric is another recent example that comes to mind with the stock lost 80% in a fairly short period of time. So going through these exercises, whether it’s on your own, with your spouse with a friend or a financial advisor, I think can be really important and impactful and lead you to the right decision for you.

Peter Lazaroff: Those are all great points, Taylor, and without going too far down the rabbit hole, I love what you said about Amazon and the tech conglomerates of today are not all that different than the diversified industrial conglomerates of 20 years ago that used to dominate the top 10. And these things go in cycles. There’s a lot of data that shows that the top 10 biggest companies don’t always stay there. 

And yes, their returns are great on the way up to being a top 10 company, but typically they trail the overall market in the following years after doing that. And so unless you’re charitably inclined and willing to give your stock away, the only way to diversify your exposure on the balance sheet is to find a way to utilize one of these strategies.

Taylor Schulte: So to recap, these four strategies which are outlined in Peter’s article, which we will link to in the show notes, tax loss harvesting, utilizing and exchange fund, optional callers or diversifying gradually, and you alluded to it too, if you’re charitably inclined, there’s other solutions that you can consider as well. 

One of the popular ones that I love to talk about are the donor-advised funds. I won’t go into great detail now. We’ll link to some resources here in the show notes. But Peter, is there anything else in the charitable realm that’s worth mentioning here?

Peter Lazaroff: I think there’s some notes in the journal article, like you said, a donor-advised fund. Maybe if you have a larger estate, you’ll look into a crut, but ultimately there’s no way to get rid of taxes. There’s only ways short of giving away your money to delay taxes or wait and out until tax policy changes. But generally speaking, we covered a lot of ground today. I appreciate you spending the time educating the audience about these issues and hopefully people can find ways to apply them to their life.

Taylor Schulte: Yeah, appreciate you dropping in, sharing your knowledge us. Peter, where can people find you? And again, share a little bit more about some of the resources that we’ll provide in the show notes, including a copy of your free book.

Peter Lazaroff: Yeah, I think if you go to the long-term investor.com, you’ll find my podcast as well as most of my resources. You’ll also find some great episodes along with you, Taylor, on the long-term Investor podcast. 

And then as we mentioned, really briefly at the top, I think if people want to know what are good resources to read and look to on a weekly basis, we have the Retirement Podcast Newsletter that goes out rpnweekly.com, I believe, and you can get on that email list. It’s one of the fastest growing lists out there, and we put out a lot of great stuff for everybody to help make them better investors and make better choices with their money.

Taylor Schulte: Appreciate you sharing all that. Thank you again, Peter, and we look forward to having you back on the show soon. 

Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.