A deep dive into custom indexing strategies for highly appreciated company stock
When a longtime Boston Scientific executive walked into my office three months ago, she carried a problem that thousands of corporate executives face but few understand how to solve. After participating in the company’s Employee Stock Purchase Plan (ESPP) for over 15 years, she had built an impressive $800,000 position in BSX stock.
On paper, she looked like a model saver. In reality, she was sitting on a tax time bomb.
The Hidden Cost of Success
This executive’s story illustrates a challenge that’s become increasingly common among high-net-worth professionals. Boston Scientific offers one of the most generous Employee Stock Purchase Plans in corporate America, allowing employees to purchase stock at up to a 15% discount. With approximately 23,000 employees participating, the benefits are substantial—until tax implications enter the picture.
Over 15 years, she had accumulated shares with an average cost basis of around $28. With BSX trading at $68, she was looking at massive capital gains on every share—a 143% appreciation that represented both financial success and her biggest tax challenge.
The Traditional “Solution” Falls Short
Every advisor she’d consulted offered the same generic advice: “Hold it—it’s a great company,” or “Just sell some each year to diversify gradually.” This traditional approach would have cost approximately $50,000 in capital gains taxes over five years.
I saw this as a massive missed opportunity.
NexPath: Custom Indexing for Concentrated Positions
Instead of forcing her to choose between diversification and tax efficiency, we implemented “NexPath”—our proprietary custom indexing strategy for highly appreciated single-stock positions.
Custom indexing allows investors to own shares in 400+ individual companies rather than fund shares. This granular ownership creates tax optimization opportunities unavailable with mutual funds or traditional ETFs.
The Implementation
Custom Portfolio Construction: We built a personalized index around her BSX holdings, creating strategic overweights in healthcare and medical device companies.
Strategic Tax-Loss Harvesting: Individual security ownership allowed us to selectively harvest losses to offset gains when reducing BSX exposure.
Charitable Giving Optimization: We identified the most appreciated securities for charitable donations, maximizing tax benefits.
The Results
Year One:
- Tax losses harvested: $47,000
- BSX stock sold: $150,000 worth
- Capital gains taxes paid: $0
- Portfolio diversification: 19% reduction in single-stock risk
Additional Benefits: A $25,000 charitable donation of appreciated stocks generated a $25,000 tax deduction while avoiding $6,250 in capital gains taxes—over $31,000 in total tax benefits.
Three-Year Impact: By year three, she had diversified 60% of her original position without paying capital gains taxes. The money that would have gone to taxes remained invested and compounding.
Beyond Boston Scientific
These principles apply to employees at Microsoft, Apple, Google, Johnson & Johnson, and dozens of other companies with generous equity compensation packages.
Evaluating Your Situation
Ask yourself:
- Is more than 20% of your investment assets in company stock?
- Do you have significant unrealized gains?
- Does your current strategy involve systematic selling and tax payments?
If yes, you may be leaving substantial money on the table.
The Bottom Line
The tax code rewards sophistication. For high-net-worth individuals with concentrated positions, the difference between basic and advanced tax planning can represent hundreds of thousands of dollars over time.
Every day you maintain a concentrated stock position without tax optimization is a day of potential lost opportunity. The right approach transforms concentrated stock from a tax burden into the wealth-building opportunity it was meant to be.
