The Importance of Customized Portfolio Solutions | Mission Wealth

foreign

[Music] Osborne the chief investment officer at Mission wealth and in this video we’ll discuss the importance of customized portfolio solutions to help diversify a concentrated stock Holdings at Mission wealth we’ve helped manage hundreds of concentrated stock positions for our clients many investors have a large concentrated stock positions within their portfolios for one reason or another investors can be hesitant to sell these positions more often than not it’s due to the tax consequences of realizing substantial gangs but in other instances there may be sentimental value attached to the position even if the stock is done well and investors financial plan May warrant more diversification or there may be a new Financial goal that requires a shift in strategy so why is diversification so important data shows that an individual stock has significantly more risk of loss than a diversified portfolio with many Holdings for instance from 1980 through 2020 approximately 44 of all stocks experienced a catastrophic loss that is a price decline of 70 or more from Peak value with minimal recovery over the

same time frame two-thirds of all stocks or 66 underperformed the broad stock market clearly for investors with concentrated stock positions diversification and downside protection should be a central consideration within an overall financial plan diversification away from single stock exposures may help reduce risk and lower volatility while at the same time providing exposures to a broader range of stocks and different asset classes that may offer attractive risk return profiles so what are your options to address a concentrated stock position well he could do nothing and assume the concentrated stock risks I just outlined you could sell the position and realize taxes if held in a taxable account importantly though we can manage these sales over the course of multiple tax years to help smooth the tax implications you could utilize a custom option strategy to create downside protection the strategy may also combine tactical divestment of the position each tax year you could also use an exchange fund to initiate a tax-free Swap and immediately diversify into a limited partnership pool that seeks to replicate returns of

the broad stock market let’s take a closer look at the last two options customized options strategies and an exchange fund customized option strategies can include buying a put option on the underlying stock which provides downside protection similar to insurance an options caller is an investment strategy used that utilizes both core and put options to keep the returns of the concentrated stock range bound by selling call options to fund the purchase of put options this strategy has the potential to be implemented in a Costless manner lettering option callers with expiration dates spanning different tax years may allow us to tax efficiently sell down a set amount of concentrated stock over time now let’s take a look at an exchange fund an exchange fund allows for the contribution of a single stock into a diversified pool of stocks this Diversified pool is constructed to closely track the returns of the broad stock market importantly the contribution of a highly appreciated stock into an exchange fund is not a taxable event unlike selling the stock and realizing the gains the contribution of a stock

into an exchange fund does not trigger any realized games and investors maintain their original cost basis after seven years the investor can receive back a diversified basket of stocks with no capital gains consequences to participate an investor must be a qualified purchaser your client advisor can help you determine if you meet these requirements admission wealth with manage hundreds of concentrated stock portfolios we can help you decide which option may be most suitable and create a customized solution to meet your specific needs and goals for more information please visit missionwealth.com or contact your client advisor

thank you