How to protect your stock portfolio when you’re close to retirement
In this article:
The closer you get to retirement, the less your portfolio can afford a “wait and see” approach.
Over the last couple of years, investors in large U.S. stocks have experienced a remarkable run. As Michael Egan from First Trust Advisors shared in our recent conversation, from late May 2023 through mid-2025, the S&P 500’s price alone climbed more than 40%—and that’s before counting dividends.
If you’ve held a portfolio that tracks large U.S. stocks, you’ve likely seen substantial gains. That’s the good news.
The challenge? Many investors are now heavily concentrated in a handful of stocks or a single index. For those who are five to ten years from retirement—or already there—this concentration can quietly turn from blessing to blind spot.
In this article, we’ll walk through:
Why concentrated stock positions are a growing risk
How options strategies can help put guardrails around your wealth
How direct indexing can create tax-smart diversification
Practical mindset shifts for families with significant single-stock exposure
As always, these concepts are educational only. Options and direct indexing aren’t appropriate for everyone, and they involve real risk. Before making any decisions, talk with your CPA and a qualified advisor who understands your full financial picture.
Why concentrated stock risk is rising now
Three forces are converging to make concentrated stock risk more urgent for many families.
1. Strong market gains have skewed allocations
After such a strong run in large-cap U.S. stocks, portfolios that once felt “balanced” may now be heavily tilted toward equities.
Advisors often build plans that blend:
Large-, mid-, and small-cap stocks
International exposure
Fixed income
Alternatives
But when one part of the market outperforms for an extended stretch, it can quietly dominate the portfolio. That imbalance may be fine in your 30s and 40s, when you have decades to recover from market drops. It’s a very different story in your late 50s or 60s, when you’re preparing to draw income from those same assets.
2. We just lived through an “air pocket” reminder
Not long ago, markets reacted sharply to tariffs and other headlines, dropping around 18% over a short window. That sort of sudden decline is unsettling at any stage of life—but it is especially concerning when you’re within sight of retirement or already relying on your portfolio for income.
The question becomes:
“Do you really want to go through another air pocket
like that with no protection in place?”
3. A wave of new retirees—and new income needs
Between 2024 and 2026, more than four million Americans per year are turning 65. For many, that marks a transition from:
“I’m okay just growing my money; I still have W-2 income”
to
“I need this money to feed me for the rest of my life.”
That shift—from accumulation to distribution—changes everything. You’re no longer just chasing returns. You’re protecting lifestyle, legacy, and loved ones.
The hidden risks of concentrated stock
According to Federal Reserve data, U.S. households collectively hold roughly $37 trillion in U.S. corporate equities. Much of that is not even professionally managed—it sits in:
Company retirement plans and ESOPs
Stock certificates or transfer agent accounts
Brokerage accounts that may not be under the guidance of your advisory team
If a large percentage of your net worth is tied up in:
One company’s stock
A narrow group of companies
A portfolio that no longer matches your goals or risk tolerance
…you may be carrying far more risk than you realize.
This is especially common for:
Long-tenured employees of public companies
Business owners who sold a company for stock in an acquirer
Families with multi-decade holdings in names like Apple, Microsoft, or other household brands
Participants with heavy company stock exposure in 401(k)s and ESOPs
There’s a well-known idea among advisors that captures this tension:
You often build your net worth through concentration.
You keep it through diversification.
For younger investors, time can help soften missteps. For near-retirees and retirees, a major decline in a concentrated position can derail an otherwise sound plan.
The emotional side: Inheriting “mom and dad’s stock”
Concentration is rarely just a math problem. It’s also deeply emotional—especially when stock is inherited.
Maybe your parents bought a stock 30 or 40 years ago that’s now worth millions. You might hear things like:
“Your grandfather started that company—never sell those shares.”
“That stock put you through college. Don’t touch it.”
In many families, one child or grandchild becomes the “steward” of this legacy. They didn’t create the wealth, but they’re responsible for protecting it—for themselves, siblings, and future generations. That responsibility can feel heavy.
One practical step for stewards to consider (in partnership with their advisor and CPA) is using short-term hedging—such as a collar strategy—while they catch their breath and decide on a long-term plan. That can provide a defined range of outcomes for a period of months while the family aligns on next steps, without forcing an immediate “sell or don’t sell” decision.
Using options to put guardrails around your stock
Options can be used in many ways, but in this context we’re focused on hedging risk and generating income, not speculation.
Important: Options involve risk and are not suitable for every investor. You should fully understand the costs, risks, and tax implications—and work with an advisor experienced in options—before using them.
At a high level, equity options can help you:
Generate income – by selling options and receiving a premium
Limit downside – by buying options that protect against large losses
A simple example: Puts, calls, and collars
Imagine you own a stock currently trading at $100 per share.
You’re willing to tolerate some downside, but not a devastating loss.
You’d also be okay with limiting some upside if it helped you manage risk and generate income.
Here’s how the pieces fit together:
1. Buying a put: Defining your “floor”
You might buy a put option with a strike price of $80.
That gives you the right (but not the obligation) to sell your shares at $80, even if the market price falls below that.
Above $80, nothing happens—you simply absorb normal fluctuations.
Below $80, the put gains value as the stock falls, helping offset your losses.
In this example, you’ve effectively set your maximum downside at about 20% (from $100 to $80), and you’ve created protection all the way down from $80 to zero.
Of course, that protection has a cost: the premium you pay for the put.
2. Selling a call: Creating a “ceiling” and generating income
Next, you might sell a call option with a strike price of $120.
If the stock rises above $120, the buyer of the call can require you to sell your shares at $120.
In exchange, you receive an upfront premium today.
That premium can help offset the cost of the put.
By selling that call, you’re essentially saying:
“I’m willing to give up gains above $120
in exchange for income and downside protection.”
3. Combining them: The collar
When you buy a put at $80 and sell a call at $120 on a $100 stock, you’ve created a collar:
The put helps limit catastrophic downside.
The call caps your upside but generates income.
In some cases, the call premium can offset the put cost almost exactly, creating what’s often called a cashless collar.
If the call premium is slightly higher than the cost of the put, you may even create a credit collar, which can generate a small surplus of income.
The result:
You’ve transformed an open-ended risk into a defined range, giving you time and breathing room to make longer-term decisions about diversifying or gradually reducing your position.
For investors with significant concentrated positions approaching retirement, collars can be one way to install “guardrails” around an otherwise fragile part of the plan.
Direct indexing: Tax-smart diversification when you have big gains
Another powerful tool discussed in our conversation with Michael Egan is direct indexing.
Traditional index funds and ETFs give you exposure to an index like the S&P 500 through a single investment. They’re simple and efficient—but they’re also “bundled.” You can’t choose which pieces to sell for tax purposes. You either own the whole vehicle or you don’t.
Direct indexing takes a different approach.
What is direct indexing?
With direct indexing:
Your account holds individual stocks that collectively behave like a chosen index (for example, the S&P 500).
An optimizer selects a subset of those stocks—perhaps 120–150 names instead of all 500+—designed to closely track the index’s performance.
Because you own individual positions, your advisor can sell specific losers to harvest tax losses, then reinvest the proceeds in similar securities to keep your overall exposure aligned.
The aim is to:
Mimic the return profile of the chosen index over time
Systematically harvest tax losses along the way
Use those losses to offset gains elsewhere in your portfolio
All while respecting key rules like the wash-sale rule, which typically requires at least 31 days between selling and repurchasing a substantially identical security.
Why now?
For decades, direct indexing was mostly used by large institutions. Trading costs made it impractical for many individual investors.
Once major custodians drove stock trading commissions to zero, that friction largely disappeared. Today, direct indexing can be accessible to a wider range of high-net-worth investors, especially in taxable (non-retirement) accounts.
“But what if the market is up?”
It’s intuitive to think tax-loss harvesting only works in down years. Interestingly, that’s not the case.
Even in strong up years, a large percentage of individual stocks within an index will experience temporary drops of 5% or more at some point. By monitoring the portfolio continuously during market hours, a direct indexing optimizer can seek to:
Capture those temporary declines as realized losses
Immediately redeploy the proceeds into similar names
Keep the overall portfolio closely tracking the index
Those harvested losses can then be matched against gains—such as gains from reducing a concentrated stock position—to help manage your overall tax bill, subject to IRS rules.
As tax professionals often note, capital loss carryforwards can generally be used indefinitely until they’re exhausted, which is why some investors view direct indexing as a long-term tax-management tool rather than a one-year tactic. (Always confirm specifics with your CPA.)
A mindset shift for investors near retirement
After decades of saving and investing, it’s natural to feel attached to the stocks that “got you here.”
Protecting your retirement may require a mindset shift:
From all-or-nothing decisions
(“I either sell everything or hold forever”)To phased, intentional transitions
(for example, hedging part of your position while slowly diversifying over a period of years)
One practical example:
If more than 20% of your net worth is in a single stock, you might decide—together with your advisor—to:
Gradually sell 5% of your position per year over a decade or more
Use collars on a portion of the remaining shares to define a risk range while you transition
Pair those sales with harvested losses from a direct indexing strategy to help manage the tax impact
This is not a recommendation, and the right numbers will differ for every family. The point is that there are more options than simply “do nothing” or “sell everything tomorrow.”
How Hershey Financial Advisers can help you find a Better Way™
At Hershey Financial Advisers, our work is about more than products or transactions. We help highly successful families move from complexity and apprehension to clarity, confidence, and assurance across their entire financial lives.
If you’re approaching retirement with a meaningful concentrated stock position, we can help you:
Assess your true exposure and how it aligns with your goals
Coordinate with your CPA, attorney, and other professionals
Explore tools like options and direct indexing where appropriate for your situation
Design a step-by-step plan that protects both your lifestyle and your legacy
We guide clients through our Better Way™ process—from Assess to Agree, Advance, and Advocate—so you are not navigating these decisions alone.
As part of that journey, many families find it helpful to start with our Wealth Clarity Assessment, a structured way to gauge how well your financial picture supports the life you actually want to live.
Summary
Managing stock risk near retirement is less about finding a perfect product and more about being intentional with what you already own. Concentrated stock positions, especially in company stock or long-held names, can quietly introduce more risk than your retirement plan is built to handle. Tools such as options strategies and direct indexing may help create guardrails and manage the tax impact of gradually reducing that risk, when they are appropriate and used with care. The most important step is working with a team who understands your full picture so that decisions about any single stock support your broader retirement and family goals.
Ready to talk about your portfolio?
If you are:
Within 10 years of retirement (or already retired)
Holding a significant position in one or two stocks
Wondering how to protect what you’ve built without overreacting
…this is the right moment to get intentional.
We invite you to connect with our team to explore whether strategies like collars, direct indexing, or broader diversification might fit into a thoughtful, values-aligned retirement plan tailored to your family.
You’ve spent years building your wealth through hard work and wise decisions. Now is the time to make sure it’s structured to support a better way of living—for you, and for the generations who follow.