Borrow against concentrated stock, don't sell it

Advisors with concentrated-stock founders should treat a liquidity request as a structure problem, and a Financial Planning opinion piece published August 31 argues the default instinct to sell an appreciated asset is the expensive reflex; the better move is to borrow against the position and keep the compounding intact. The sell-to-diversify conversation is a back-end tax problem, the loan is a front-end structure decision, and for a founder who needs $20 million on a diversified $150 million public portfolio, that client can generally borrow up to 70% of the value.

The difference between a high earner who bleeds a third of gains to taxes and one who keeps compounding comes down to structure, applied by an advisor who knows the Tax Code, and a portfolio margin loan delivers the cash without selling a share: the proceeds are not taxable income, so the portfolio keeps compounding while the client covers interest with dividends or sells only what is strictly necessary. The same structure applies to private stock and whole life policies, the piece notes, and the principle to convey is that you do not need to generate taxable income to generate cash.

The endgame is where the structure earns its keep: the debt resolves when portfolio growth outpaces interest over a decade, when the client eventually sells a portion at long-term capital gains rates, or when the client holds the asset for life and heirs receive a step-up in basis that wipes out the unrealized gains. That third outcome is the generational one — the gain is never recognized and the family starts with a fresh basis.

The playbook then asks what to do with the borrowed cash, and the wrong answers are leaving it in cash to be eroded by inflation or buying more stock to generate taxable dividends. The ideal move, in the article's telling, is an asset that appreciates, produces cash flow, and generates paper losses, though the piece cuts off before naming that asset, leaving advisors to fill in the vehicle themselves.

The same logic should apply beyond the ultra-wealthy — any client with a low-basis concentrated position can run this math, though the article targets founders and executives. As returns commoditize, this kind of tax structure becomes the visible skill, and the advisor who brings the loan conversation before the client asks to sell is the one who will own the relationship through the step-up.