What to do if you’re stuck in appreciated stocks/ETFs

A lot of investors come to us with what I call “locked up” portfolios.

They’ve built a large stock or ETF portfolio with substantial embedded gains, but selling would trigger a massive tax bill.

At the same time, they want access to tax-aware investments that can help reduce taxes from either capital gains or ordinary income.

The good news is - you often don’t need to sell the portfolio to begin improving the tax profile.

Scenario #1 — You have capital gain exposure

Let’s say you have a $5M appreciated stock portfolio and are about to realize a large capital gain from:

• selling real estate
• a business sale
• concentrated stock
• private equity distributions

Instead of liquidating the portfolio, we can potentially use the existing securities as collateral to add long/short extensions for:

• a new return stream
• and ongoing tax-loss harvesting opportunities

Those harvested losses can then be carried forward indefinitely and used to offset future capital gains.

Scenario #2 — You have large ordinary income

Now take the same $5M portfolio, but instead of capital gains, your issue is high ordinary income.

In that case, we can potentially borrow against the securities through a box spread structure and redeploy a portion of the capital into:

• tax-aware hedge fund strategies
• and/or real estate investments

These can offer diversification benefits, while also realizing ordinary deductions that can help offset income.

Then the tax savings themselves can be used to pay down the financing or reinvest for more growth/tax savings.

Don’t think that you can’t do anything with a highly appreciated portfolio.

With the right structure, it can become the foundation for:

• tax-aware diversification
• alternative investments
• improved after-tax compounding
• and more flexible financial planning overall