Concentrated Stock Calculator

See what Cache can do for your portfolio

Concentrated Stock Calculator

Tell us about your situation, and we'll show you side-by-side strategies to help you diversify tax-efficiently.

Which stock are you concentrated in?

How the Calculator worksUnderstand the mechanics behind each approach.

This calculator simulates three diversification strategies, Exchange Funds, Tax-Aware Long/Short, and Sell to Reinvest, modeling taxes, growth, and risk year-by-year. The models are simplified for clarity but capture the essential economics of each approach. Here's how each strategy works:

Exchange Fund

How it works: Swap stock for diversified fund shares and defer taxes

You contribute your concentrated stock position to an exchange fund benchmarked to a particular index, providing immediate diversification upon entry. Under IRC Section 721, this is a tax-deferred exchange, i.e., your unrealized gain isn't taxed. Your original cost basis carries over into the fund.

Annual returns: Market growth minus expenses

The fund holds a diversified portfolio (typically 80% public equities, 20% real estate). Your account grows at the market return minus management fees (0.40–0.95% depending on investment size), operational expenses (0.10%-0.15%). Tracking error is assumed to be 2.0% annualized (the fund approximates the index). For simplicity, we model the real estate component returns as neutral to the funding costs.

Exit after 7 years: Receive diversified stocks, no forced sale

After the required 7-year holding period, you can withdraw by receiving a basket of diversified stocks in-kind (no sale required). Your original cost basis carries over, so all appreciation stays tax-deferred. You only pay tax if and when you sell those shares.

Tax-Aware Long/Short

How it works: Keep your stock, add a long/short overlay

You maintain your concentrated position and overlay it with a long-short portfolio. All of it is in a separate account managed for you. The overlay buys diversified stocks on margin (e.g., 50% of your capital for 150% total long exposure) and shorts other stocks (e.g., 50%). This 200% gross exposure amplifies market movements (both gains and losses), though the shorts offset some losses if markets decline.

Annual tax-loss harvesting: Trade actively to generate losses

The overlay trades frequently, selling losing positions and buying highly correlated (but not substantially identical) replacements to generate tax losses without materially changing your market exposure. The calculator assumes loss generation based on academic research and industry data, adjusted for market volatility and time elapsed. These losses are "capital neutral", i.e., they don't reduce your overall position value, but create a tax benefit.

Gradual diversification: Use losses to offset gains when selling concentrated stock

Each year, as you sell some concentrated stock to diversify, the harvested losses offset the taxable gains, letting you diversify with little or no current tax. Important: This is tax deferral, not elimination. When losses offset gains, the overlay's cost basis drops. That creates an embedded gain that gets taxed when you exit.

Exit: Overlay gains are taxed when you sell

When you close overlay positions, the embedded gains are taxed. The calculator models unwinding at the end of the horizon. Your concentrated and diversified holdings can remain invested (taxes deferred) or be sold.

Note: Exiting the strategy triggers gains from the overlay that could reduce the overall benefit. A common approach is an optimized de-leveraging path where the account is slowly dialed back to lower leverage over many years while keeping taxes low. Eventually, you'll still need to realize some gains to exit the strategy.

Sell & Reinvest

How it works: Pay taxes now, reinvest in a diversified index fund

You sell your entire concentrated position and pay capital gains tax on your unrealized gain (federal + state rates apply). After paying taxes upfront, you reinvest the remaining proceeds into a low-cost index fund.

Annual returns: Market growth, minimal costs

Your after-tax proceeds grow at the market return minus a low index fund fee (~0.10%). Your cost basis resets to the after-tax amount you reinvested, so future gains are calculated from this new, higher baseline, meaning less embedded gain going forward compared to the other strategies.

Exit: Account value, plus deferred tax on new gains

Your portfolio is fully diversified and growing. If you sell, you'd owe tax on any gains since the initial reinvestment, but this is deferred (you only pay when you liquidate). The calculator shows both your account balance ("Stay Invested") and what you'd keep after all taxes ("Realize Taxes").

Market & Risk Modeling

•What is volatility? Volatility measures how much prices fluctuate over time, expressed as an annual percentage. A 15% volatility means that in a typical year, prices might swing up or down by around 15%. Higher volatility = larger price swings = more uncertainty. The S&P 500's historical volatility is ~15%; individual stocks are typically 2–3× more volatile (30–45%) due to company-specific risks.
•Market condition assumptions: You can model different environments: Calm (12% volatility, 8% return) = low uncertainty, steady growth; Normal (15% volatility, 9% return) = typical market conditions; Falling (22% volatility, 2% return) = bear market, high uncertainty; Volatile (25% volatility, 5% return) = high uncertainty but positive returns. The calculator adjusts loss harvesting rates, return expectations, and risk bands based on your selection.
•Return projections: Based on historical S&P 500 or Nasdaq-100 returns (~8–12%/year historically), adjusted for fees and market conditions.