A Note to 3M Employees with Concentrated Stock Positions
If you’ve built a $1M+ position in 3M stock, it likely didn’t happen overnight. It came from years of disciplined work, equity compensation, reinvestment, and belief in the company. That’s something worth respecting. But it’s also where one of the most underestimated financial risks lies.
The Hidden Risk That Doesn’t Feel Like Risk
Concentration risk rarely feels dangerous while it’s building. In fact, it usually feels like success—and it often is. There may be no more reliable path to significant wealth accumulation than concentration.
Your company performs well. Stock grants accumulate. You reinvest dividends. Over time, what started as a reasonable allocation quietly becomes 20%, 40%, or significantly more of your net worth. Between non-qualified stock options, restricted stock units, the employee stock purchase plan, and your 401(k), the exposure compounds in ways that aren’t always obvious.
Then, one day, you realize you’re deeply and financially tied to the fate of a single company.
A Baird Research study examined 309 companies that remained consistently in the S&P 500 and compared their returns and risk to a diversified 60/40 portfolio over the 10-year period from 2006 to 2016 [1]. The findings were striking: Over one-third of individual stocks underperformed the diversified portfolio, and as expected, every individual stock carried higher volatility.
The “Double Exposure” Problem
Owning a significant amount of your employer’s stock creates a unique and compounding dynamic. Your income, career, and net worth all depend on the company. If the company hits turbulence, it’s not just your portfolio that suffers. Job security, bonuses, and future earning potential can all be affected simultaneously. That correlation is what makes concentrated employer stock fundamentally different from other investment risks. Income can often be replaced. A bruised career trajectory can heal.
But a large portfolio correction can derail retirement plans, charitable giving intentions, and the financial legacy you’ve worked to build for the next generation.
A Lesson from Enron
At its peak, Enron was considered one of the most innovative companies in America. Employees believed in it professionally and financially. They loaded retirement accounts with company stock. They held through volatility. They trusted leadership and the narrative.
Then, almost overnight, Enron was exposed and devalued from over $90 to near zero. For the employees who were heavily concentrated in the company, everything changed [2]. The stock fell from over $90 to near zero. Both their income and their accumulated wealth disappeared at the same time.
These people were not reckless. They were entirely rational, given the information and the success they had experienced up to that point, but they still experienced the worst-case scenario.
“Safe” Companies Aren’t Immune
It’s easy to dismiss Enron as a fraud case and therefore irrelevant to your situation. But concentration risk doesn’t require scandal.
Consider General Electric, once a cornerstone holding for conservative investors. From 2001 to 2017, its stock declined roughly 75% [3]. Or think about Intel, down nearly 70% from 2000 to 2002. Cisco Systems went down nearly 70% from 2000 to 2001 [4]. Kodak, Sears, and Blockbuster—all industry leaders that simply didn’t adapt quickly enough.
We want to be clear: we are not implying that 3M faces anything similar to these situations, only that none of us know where any company’s stock will trade in the future. Great companies can still be poor investments over certain periods, especially when held in isolation.
Why Smart People Stay Concentrated
If the risks are this clear in hindsight, why do so many financially sophisticated professionals remain concentrated?
Because the reasons are deeply human:
- Familiarity bias – You know this business better than almost any outside investor
- Loyalty – Selling can feel like betting against your own company
- Tax aversion – Large gains come with large tax bills, and this is often the biggest obstacle
- Momentum – Selling a winning stock feels like forfeiting future upside
- Trading restrictions – If you’re still working in an executive role, you may have limited windows in which you’re permitted to sell
These forces create inertia. Even when diversification makes complete sense intellectually, it feels difficult emotionally and financially.
How to Diversify Without Creating a Tax Shock
The hesitation to diversify lies in its perceived consequences. The biggest one? Taxes. Selling a highly appreciated position can trigger a significant capital gains bill, leaving many employees feeling stuck: Either hold and accept the risk, or sell and take the hit.
But that’s a false choice. There are multiple strategies designed specifically for situations like yours, where the goal is to reduce concentration gradually, tax-efficiently, and intentionally.
Start with a Reframe
Diversification helps ensure that no single outcome defines your financial future. You don’t have to go from 50% in one stock to 0% overnight. The most successful approaches unfold over time.
Strategy 1: Long/Short Direct Indexing – The “Drip” Approach
Best for positions of $1 million+, particularly with a low-cost basis
This strategy is designed to reduce concentration risk today while working toward tax-neutral diversification over time. Rather than triggering one large tax event, it works by:
- Generating capital losses annually to offset the gains realized from selling 3M stock
- Gradually shifting your portfolio toward index-like returns with index-like risk
- Eliminating the pressure to “time the market” perfectly
The strategy uses leverage and a combination of long and short positions to maximize loss-harvesting opportunities, systematically unwinding your concentrated position in a tax-neutral way over a multi-year period, while moving toward and ending in a more index-like portfolio.
Strategy 2: Exchange Funds
Best for positions of $1M+
Exchange funds were created specifically for investors with concentrated stock positions. Here’s how they work:
- You contribute your 3M shares into a pooled fund alongside other investors contributing their own concentrated positions
- In return, you receive an interest in a diversified portfolio that holds all contributed stocks
The key benefit is that you get to defer capital gains taxes while achieving immediate diversification. Unlike long/short indexing, which seeks to gradually unwind the position tax-neutrally, an exchange fund simply defers the tax liability while getting you diversified now.
This strategy comes with some notable trade-offs: Holding periods are typically seven or more years; there are limits as to how much of one position you can exchange; and there are liquidity constraints and position size limitations.
Strategy 3: Protective Options Strategies
Some investors prefer to reduce downside risk without immediately selling shares. Common approaches include:
- Protective puts – Essentially, these strategies are insurance against a significant price decline, but you must finance the cost of the put option.
- Costless collars – These cap your upside potential but establish a floor on the downside. This strategy mirrors the purpose of the protective put but finances the put option with the call option.
These strategies can provide short-term protection, create space to diversify more gradually, and reduce emotional decision-making during periods of volatility. They also pair well as an overlay on the long/short direct indexing strategy, helping to protect against a sharp decline in 3M stock while you work through a multi-year tax-neutral unwind.
Strategy 4: Donor-Advised Funds (DAFs)
Best for charitably inclined investors in high-income years
If giving is part of your financial picture, this is likely one of the most tax-efficient tools available:
- Donate appreciated 3M shares directly to a donor-advised fund
- Receive a charitable deduction for the full fair market value
- Pay zero capital gains tax on the donated shares
- Grant funds to the charities of your choice on your own timeline
This strategy works particularly well in high-income years and can often be paired with a Roth conversion strategy to further maximize tax efficiency.
Strategy 5: Targeted Unwinding and Options Exercise Planning
Vesting schedules and option grant dates create natural planning opportunities. Non-qualified stock options carry 10-year maturities from the grant date, timeframes that offer significant room for intentional tax planning.
Consider a scenario where you’re approaching retirement with multiple years of non-qualified options at different grant prices. A well-constructed plan maps out future cash flows to identify the optimal windows for exercising options before maturity. This gives you a flexible exit roadmap that you revisit annually as stock prices, concentration levels, and tax brackets evolve.
What the Most Effective Plans Have in Common
Regardless of which strategies are used, the most successful diversification plans share a few traits:
- They’re gradual – not reactive or driven by a single event
- They’re tax-aware – and in some cases, tax-neutral
- They’re intentional – built around a target allocation, not a gut feeling
- They’re disciplined – executed consistently, regardless of market noise
To better understand what strategies might work for you, ask yourself:
- What percentage of my net worth do I want concentrated in a single stock long-term?
- What’s a realistic timeline to get there?
- Which combination of strategies minimizes unnecessary cost along the way?
The answers to these questions will help take the stress and emotion out of what should be a structured, manageable process.
The goal of these strategies is to convert concentrated wealth into more durable, diversified wealth in a way that aligns with your goals, your timeline, and your tolerance for risk.
Because at a certain level of success, the challenge is no longer building wealth.
It’s making sure you get to keep it.
For personalized financial guidance tailored to the needs of 3M and Solventum employees, click here to schedule a meeting with a Beacon Pointe advisor.
[1] https://www.bairdwealth.com/siteassets/pdfs/hidden-cost-holding-concentrated-position.pdf
[2] https://www.newlowobserver.com/2018/01/the-rise-and-fall-of-ge/
[3] https://finance.yahoo.com/news/heres-much-investing-1-000-125124063.html
[4] https://finance.yahoo.com/news/heres-much-investing-1-000-142048982.html
Important Disclosure: The information contained in these materials is for general informational purposes only. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. Beacon Pointe Advisors does not offer legal or tax advice. Please consult with the appropriate tax or legal professional regarding your circumstances. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances. This document was prepared with the assistance of Microsoft Copilot, an AI-powered tool that generates and helps refine content based on user input, though its outputs may occasionally resemble existing works that are not fully cited.