Your Optimal Diversification Path

What’s the smartest way to diversify your stock position? This tool guides you to the optimal financial path by projecting the portfolio's value if you sell now versus use an exchange fund, and pinpointing the precise break-even expense ratio that makes your choice clear.

Sell & Reinvest

$0

Final Real After-Tax

$0

Nominal Pre-Tax

$0

Total Taxes Paid

Exchange Fund

$0

Final Real After-Tax

$0

Nominal Pre-Tax

$0

Total Taxes Paid

Value Over Time Comparison

Nominal Pre-Tax
Real After-Tax

Break-Even
Expense Ratio

0.75%

This is the maximum annual fee an exchange fund can charge and still give you a better outcome than selling your stock now.


If your exchange fund's expense ratio is lower, then it's better to use the exchange fund. If it's higher, then sell & reinvest is the better choice.

Break-Even Expense Ratio vs. Time Horizon

Taxes Paid Over Time

This chart shows when taxes are paid in each scenario. For "Sell & Reinvest," tax is paid on the initial sale (Year 0) and again on gains at the end. For the "Exchange Fund," tax is deferred until the end of the investment horizon.

Key Assumptions & Notes

  • Taxes are calculated based on the long-term capital gains rate provided. The model assumes all gains are long-term.
  • For simplicity, taxes are paid at Year 0 (for the "Sell & Reinvest" scenario) and at the end of the total investment horizon.
  • All returns are compounded annually, including investment returns and the effect of expense ratios.
  • The model does not account for dividends or other distributions from investments.
  • The "Tax Rate" input should be your combined federal, state, and local capital gains rate.
  • This is a simplified financial model and does not account for all possible market conditions or tax law changes.

This tool is for informational purposes only and does not constitute financial advice. Consult with a qualified financial advisor and tax professional.

Learn More

Understanding Concentrated Stock Risk

Why holding a large position in a single stock can be riskier than you think.

Read More →

Intro To Exchange Funds

How these specialized funds work and who they are best suited for.

Read More →

Lock-Up Period

Exchange funds typically require you to keep your money in the fund for a minimum period, often seven years, to achieve the tax deferral. This reduces your liquidity.

Fund Quality & Returns

This analysis depends heavily on your return assumptions for both scenarios. You must be confident that the portfolios can achieve the returns you have modeled.

Estate Planning

If you hold the exchange fund position until death, your heirs may receive a step-up in basis on its value, potentially eliminating the deferred capital gains tax entirely. This can be a powerful advantage.

Taxes

A high tax rate makes tax deferral significantly more valuable and raises the break-even expense ratio. Ensure your tax rate input reflects federal, state, and any other capital gains taxes.