Schwab flags the dangers of over-concentration lurking in your winning stocks

The stock that powered your portfolio for years may now be exposing you to hidden risk, and most investors don't realize it until the impact is already felt. Even if your investments performed well while others lagged, the very portfolio that built your wealth can subtly alter your overall risk exposure.

A recent report from brokerage firm Charles Schwab states that just one bad quarter could turn into a portfolio-altering event for you. That's why Head of the Schwab Center for Financial Research Mark Riepe has laid out how this hidden danger creeps into ordinary accounts, along with practical ways for you to respond.

Schwab's warning about concentration risk in your portfolio

When any single stock climbs above 10% of your total portfolio, Charles Schwab considers your account over-concentrated and more exposed to sharp losses. The threshold moves up to 20% if company rules or insider status restrict your ability to sell shares within a given period.

"Concentrated positions are a concern because stocks inherently carry market risk….You could lose a large portion, or even all, of your investment, which would have an outsized effect on your household's overall portfolio in the case of a concentrated position," said Roger Young, thought leadership director with T. Rowe Price.

A 40% drop in a stock holding 20% of your account would erase 8% of your total portfolio value in a single trading session. Riepe suggests starting with a written plan that covers your objectives, your tax situation, and the role the position plays in your overall household wealth.

How a single stock can dominate your portfolio

Concentration usually builds slowly through equity compensation, long-term price appreciation, or heavy exposure to the same mega-cap names inside several index funds, Schwab said.

If you work in tech, finance, or biotech, vested shares and employee stock purchase plans can stack up faster than many employees realize over time. Even passive investors carry this risk, since market-cap-weighted indexes such as the S&P 500 tilt heavily toward a handful of dominant companies.

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That means owning an S&P 500 fund can leave you with outsized exposure to names you might not have chosen yourself as a stock picker. If you bought Nvidia or Apple early and let the shares ride, you may already be in this territory without making any changes to your plan.

Not every investor realizes when a portfolio crosses the concentration line because paper gains can mask the actual risk in your holdings today. One clear warning is a single position that accounts for more than 10% of total assets, especially when that stock sits in a taxable brokerage account.

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Why an all-or-nothing approach rarely fits real-world investors

Schwab's framework breaks concentrated-stock management into three broad paths: keep the shares, sell the shares, or give the shares away in some planned fashion. You do not need to pick only one path, because a blended approach often fits real life better than a single move that changes everything.

Combining all three can be a tax-efficient way to unwind concentration risk while still honoring your long-term goals, Riepe wrote. Keeping the stock sometimes makes sense, especially when compensation rules, lockup periods, or insider restrictions make a clean sale impossible in the near term.

How to hedge a winning stock without selling any shares

If selling is off the table due to restrictions or personal convictions, Schwab highlights four main ways to manage downside risk intelligently.

Hedging options Schwab highlights

1. Stop-loss orders trigger automatic sales once the price hits a preset level, though rapid drops can sometimes execute well below your chosen target price.
2. Protective puts are contracts that let you sell shares at a preset price, offsetting losses if the stock drops, but they cost money at each renewal.
3. Cashless collars pair a protective put with a sold call option, capping both your downside risk and your upside potential in one combined move.
4. Direct indexing lets you own individual index components while excluding or underweighting the specific stock you already hold in substantial size, creating tax flexibility.

Company stock rules may forbid options strategies for employees, so double-check your grant agreement before placing any hedging trade of any kind, Schwab said.

How to gift stock to charity or family for extra tax savings

Giving appreciated stock serves two goals at once, because you remove concentration risk and generate a potential tax deduction in the same year. Donating directly to charity generally beats selling first and donating cash, since you skip capital gains tax entirely on the appreciated portion you give.

The deduction for appreciated securities is capped at 30% of adjusted gross income, with a new 0.5% AGI floor applying in 2026, according to Schwab.

You can gift up to $19,000 per recipient in 2026, or $38,000 per couple, without touching your lifetime estate exemption, according to the IRS. The 2026 lifetime gift and estate tax exemption is $15 million per person, giving wealthy families meaningful planning room under current federal law.

Common mistakes to avoid before you touch your concentrated stock

Before acting on any of these strategies, it helps to know the traps that catch investors when they finally decide to unwind a big winner.

Mistakes that derail diversification plans

• Selling a giant position in one tax year, which can push you into the 20% capital gains band plus a 3.8% net investment income surtax. J.P. Morgan models this explicitly: A $10 million position with no cost basis faces a combined federal rate of 23.8%.
• Ignoring employer rules on options strategies, since many companies forbid employees from using collars or protective puts on company stock in brokerage accounts.
• Donating cash from a stock sale rather than donating shares directly, which triggers capital gains tax and shrinks the net benefit of your charitable gift. Donating long-term appreciated securities directly can eliminate capital gains taxes and provide a fair market value deduction, according to Fidelity Charitable.
• Forgetting Net Unrealized Appreciation treatment on employer stock held inside a 401(k), which can unlock long-term capital gains rates on distributed company shares. Fidelity calls NUA a "little-known tax break" that lets you pay lower capital gains rates on a portion of tax-deferred assets instead of higher ordinary income rates.

According to Schwab, a measured approach almost always beats a reactive one, especially when markets get volatile, and emotions start pulling at your long-term investment discipline.

What to do next with your concentrated position

When a single stock represents a large share of an account, Schwab suggests starting by reviewing the portfolio percentages and understanding how each holding was accumulated, whether through equity compensation, long-term appreciation, or overlapping fund exposure.

The firm also recommends assessing how the position fits within broader financial goals and how sensitive it may be to market swings, noting that significant declines are not unusual for individual stocks. Schwab adds that further evaluation may involve input from tax and legal professionals to understand potential implications.

Related: Schwab debunks costly tax bracket myth

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This story was originally published April 28, 2026 at 4:07 AM.