Stock Cert

Q&A with IFA: Unwinding a Large Stock Position

Stock Cert

Question: I hold a large stock position in the company that I used to work for. Can IFA help me unwind that position so that I can invest the proceeds into a diversified portfolio?

Answer: In the past, we have helped many clients liquidate large stock positions which resulted from employment, inheritance, or simply investment. The primary reason to consider liquidation is the diversification benefit of the lower risk of many stocks vs. one stock, as illustrated in the chart below.

While the chart above depicts the theoretical benefit of moving from one to many stocks, the chart below shows how it has worked in practicality over a long period of time.

When unwinding a large stock position, there are several important factors that we take into consideration.

First, are there any restrictions such as blackout dates on trading the stock? We would consult with you, and if needed, we would help you research the question.

Second, we would consult with you to determine over how long of a period you would like to liquidate the stock. Even if you want to liquidate as quickly as possible, it may not be prudent to complete the liquidation in a single day or even a couple of days, depending on how liquid the stock is. Currently (as of 8/26/2014), two asset custodians that IFA uses allow for 60 days of free trades on new accounts. All of IFA’s custodians have institutional traders who are ready to assist us in executing a large sell that may require a special technique such as volume-weighted average price.

Third, we would make sure that you are fully aware of the tax consequences of selling, and we would help you understand both the costs and benefits of selling so that you can make an informed direction. Should you decide to sell only part of the position, we would sell those shares that generate the least amount of taxes.

In closing, if a large part of your wealth is in a single stock, we would normally recommend that you diversify in a sensible and cost-conscious manner. Having an investment fiduciary in your corner will be a true benefit for you. If you would like to consult with an IFA Wealth Advisor about your specific situation, please give us a call at 888-643-3133.