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Eaton Vance Parametric Concentrated Stock Position Calculator

How should I deal with concentrated stock positions?

Many successful investors hold portfolios that are too heavily concentrated in a single stock. Sometimes the stock that dominates a portfolio is that of a current or former employer. In other cases, the oversized holding was acquired through a merger or acquisition. Or the stock may have achieved its dominant position simply by outperforming other holdings over time.

Whatever the background, investors with concentrated stock positions face the risk that a change in the fortunes of a single company could jeopardize their financial well-being. Lehman Brothers, Enron, and other prominent failures of recent decades remind investors that no company, no matter how strong or well positioned it may seem, is immune from risk. Most financial advisors therefore recommend that clients restrict single-stock positions to prudent limits, typically not more than 10% of portfolio value.

For taxpaying investors, the biggest impediment to diversifying low-cost stock is often capital gains taxes. Selling low-cost stock from a taxable account involves a trade-off between the known up-front tax and transaction costs and the uncertain future benefits of risk reduction. For many investors, capital gains taxes (including state and local taxes) of up to 37% of the value of their investment may seem too high a price to pay for diversification.

There are ways other than a taxable sale of stock by which you can address the risk of concentrated stock positions. In evaluating your options, you may want to consider the information below.

The information presented in the stock position calculator tool is for hypothetical and illustrative purposes only. The tool does not reflect the performance of any specific Parametric product.