How to Manage Concentrated Positions in High-Flying Stocks Like Apple
For those of you who have been lucky enough to hold Apple (NASDAQ: AAPL) stock for the past several years or longer, there's a good chance you've thought about locking in some of the lofty gains at some point during your ownership and diversifying into other investments. This makes sense from a purely statistical standpoint: The fact that AAPL has outperformed the S&P 500 index consistently in the past provides exactly zero indication that it will continue to do so in the future.
But there are important variables to consider when exiting a concentrated stock position -- many of which deal with limiting capital gains tax and controlling risk exposure. Let's take a closer look at what you need to take into account when considering selling a high-growth stock.
The very substantial gains embedded within a single company holding imply you will have a large tax cost if the position is sold. Typically, this cost assumes the form of long-term capital gains tax, ranging from 0% to 23.8% of realized gains, depending on your tax bracket. If you have a very low-cost basis and don't want to be responsible for a massive tax bill in any one year, you might consider staging the sale of stock over a predetermined period of months or years. This allows you to spread your tax burden out over time and benefit from a diversified portfolio on an incremental basis.
Source Fool.com
