Advice- My parents have 20% of entire portfolio in one stock

[shaynaatl]

My dad entirely manages my parents' finances and retirement/stock portfolio. He has decent knowledge about investing, but I do help him here and there with asset allocation and choosing mutual funds. I know very little about individual stock investing, so I don't help him with that.

He recently mentioned that one of their stocks has had a big run-up recently, and I calculated the current value to be about 20% of their total portfolio. I warned him this seems risky, and said experts would not recommend having that much concentration in one stock.

My mom told him to sell some of it to lock in gains (the company is where my mom worked for 25 years, and even I worked there for a summer during college). She has a small pension from them ($1100/mo), so she is already exposed to company failure risk. It's a mid-sized manufacturing company that is pretty cyclical. It's down about 10% from its '21 high, but still up 2x over the last year.

He was originally concerned about paying a lot in taxes if he were to sell some, but I reminded him about the 15% capital gains tax rate. Then he said he doesn't know what to do with the proceeds, since he isn't looking to spend extra. I suggested he find some new individual stocks, or just pick a tax-efficient mutual fund. Part of him also wonders if they should just hold on to see if it climbs higher.

Do you think that they should sell down their stake in that stock? If so, how much would you sell down? Would you do it gradually (and pay more trading fees), or big chunks at once? 

Thanks for any insight.

[ohgillian]

Yes, that does seem overexposed. If you can get him to do it, I bet you'll have more luck with him selling a big chunk at once; otherwise each time he sells a portion he has to mentally make the decision to sell all over again.

That said, if they're under the $80k zero tax bracket on capital gains, I would probably sell just enough to stay in that bracket, then do it again next year.

[Not an expert, just opinionated. Ha.]

[flygirl]

I would try to recommend that he sell it down to at least 10% and buy some mutual funds or ETFs

[mich1]

DH is uncomfortable if he has more than 10% in any one stock. In fact, when his employee stock options climbed to 25%, he sold off over half as it was too much. Later, the company was sold and he would have made a whole lot more - but Enron tentacles reach far. Even so, he banked a hefty chunk of change with that stock sale and he still had another 10% which paid out very decently (non employees could not hold stock in this new company and he was no longer working there).

[jlt19]

I don't like ANYTHING to be over 20% of my portfolio, especially one stock (vs a MF or ETF). Depending on the rest of his investments, I'd have him sell most of it (over some time though) and put it into some MF's that are highly rated with low expense ratios with whomever they have their investments with. Depending on their ages, I really wouldn't want any of their money in a single stock, unless it's something like Apple or Amazon.