(1) So here is the deal with the MS stock, it has shown considerable appreciation and based on my knowledge, I see more upside in the next 2 years. But I am concerned enough that I'd like to insulate myself from downside risk given the somewhat crazy political climate in the US. Do the aficionados on this list use married puts or other hedging strategies?
Ah, the effects of anchoring. You're asking the wrong question.
If you were investing $3.3 million today, would you put $800k in Microsoft?
If not, time to diversify. It's that simple. Every single day you make a decision or non-decision to invest your money however you're going to invest it. So, imagine pulling out all $3.3 million today, and ask how you would invest it tomorrow. Then do that.
Also, you're set financially, but it's always easier to see in other people than yourself. It's a recurring issue on this board.
Congrats, and good luck!
The underlying assumption of this post is that there is not a signification adjoint off capital gains in that msft stock.
If there is, the question is whether you would prefer 800k in msft or a fair bit less in an index fund.
I'm not sure this reasoning is correct, unless the taxes are onerous.
First, is the MSFT stock held in a retirement account or taxable?
Even if taxable, LTCG rates are 20% at the top end, correct? That's close to what you're going to pay at some point regardless (although admittedly paying now rather than later).
If you had $800k to invest and were planning to put it all in VTSAX or something equivalent, would you instead put it all in e.g. Target stock if I told you there would be a 5% lower tax on gains? Who here would take that risk?
The same goes with the idea to watch the potential tax changes that might affect MSFT (later post). Haven't those expectations or that uncertainty been built into the stock price? Does OP or anyone else here have better information about what's going to happen with the proposed tax changes than the market? Does anyone here recommend loading up a significant amount of any investor's portfolio in one stock?
If the taxes will be significantly higher than they might otherwise (e.g., ordinary income tax rates, and someone else mentioned AMT--which I'm not sure about so definitely worth looking into), then holding or slowly unwinding the position might make sense. Or if you're thinking you'll never sell them and instead leave them as inheritance or give as charity, so no gains taxes.
But for a possible 5% tax rate difference? No way I'd recommend that someone put 30% of their investments in one company's stock to save 5% on any potential tax on the gains. Don't let the fact that you already own the stock irrationally change the analysis, which is a common behavioral economics error.
So check with a tax professional. But if these are retirement accounts (no tax issues), or you're paying long-term capital gains rates of 20% or less, I'd liquidate that position immediately and invest it according to your overall investment plan (total market, or whatever that might be). Although I guess the counterpoint is that you have so much money that it probably won't matter any way!
