An ASML employee’s guide to diversifying concentrated ASML stock in a tax-efficient way

Frec is not a tax advisor, and this article is general educational information, not tax advice. Everyone’s tax situation is different, so please consult a qualified tax professional about your own circumstances before making any decisions.

If you work at ASML, a large share of your net worth probably sits in a single stock: ASML. Years of vesting RSUs, an ESPP, and maybe early options tend to add up quietly until one day, most of your portfolio is one company. That could be a good problem to have. It could also be a real risk, and selling to fix it usually means a tax bill you would rather avoid.

Here is the situation most ASML employees run into, and the tax-efficient ways to handle it.

Why one big position is riskier than it feels

A concentrated position can mean your financial future is tied to the performance of one company. When ASML rises, that feels great. The truth is that a single stock can fall sharply for reasons that have nothing to do with your job or your effort, and if most of your wealth is in that stock, a bad stretch hits your portfolio and your paycheck at the same time. Diversification is often considered the standard fix: spread the position across many companies so no single position has a drastic impact on your net worth.

A common reason that people put this off is taxes.

The tax problem with just selling

Most of that ASML probably came to you as RSUs, and RSUs are taxed in two stages. When they vest, the full value at that moment is taxed as ordinary income, and that vest-date value becomes your cost basis. After that, the gain above the vest price is taxed as a capital gain when you sell. So if your shares vested years ago when ASML was much lower, you may be sitting on a large embedded gain today. Sell a big vested position all at once, and that gain can be substantial, which results in a large tax bill. As the position keeps growing, the risk and the tax cost of fixing it keep growing too.

(If you also hold ESPP shares or exercised options, those have an actual purchase price as their basis. But for most ASML employees, vested RSUs are the bulk of the position.)

Depending on an investor’s circumstances, there may be a more efficient path than selling everything and eating the bill.

How direct indexing strategies can help you diversify tax-efficiently

Direct indexing means owning the individual stocks that make up an index rather than buying a single ETF. Because you hold the underlying stocks directly, the strategy can harvest tax losses automatically — when individual stocks in the index dip, those positions are sold to realize a loss and replaced with closely correlated stocks, so your market exposure stays roughly the same. Those harvested losses can offset capital gains, including the gains from trimming your ASML position, and up to $3,000 of ordinary income per year, with any unused losses carried forward.

In simpler terms, the losses generated inside a direct index portfolio can potentially absorb some of the tax cost of selling down your concentrated stock. You diversify, and the tax bill is smaller than it might have been otherwise.

Frec Diversify, for the concentrated position itself

Frec Diversify is designed for people holding a large single-stock position who want to move into a diversified index over time without triggering the entire gain at once. You can actually diversify from up to 5 concentrated positions at a time with Frec Diversify too. Rather than selling your ASML outright, it builds a diversified index position around the shares you already hold, which is why it carries a financing cost: Frec’s 140/40 strategy has a $100,000 minimum, a 0.60% advisory fee, plus a 0.23% post-tax financing cost (0.38% pre-tax)*.

One important caveat. Because Diversify uses a long short structure that diversifies around your existing shares, it may collide with your employer’s stock policies. Most public companies restrict employees from hedging or pledging company stock, and have blackout windows and pre-clearance rules for any transactions in their shares. Those policies often limit or prohibit this kind of strategy on your own employer’s stock while you still work there. For that reason, Diversify frequently fits best once you have left ASML, when those restrictions no longer apply. If you are still at ASML, check your company’s insider trading and hedging policy first, or talk to Frec about timing.

*Post-tax financing cost is gross financing cost minus tax deductions from financing expenses using a 40% marginal tax rate. Actual after-tax costs depend on individual tax circumstances, consult your tax advisor.

Long short direct indexing, for tilting a portfolio and aiming to maximize harvested losses

If your position is large and you have the risk tolerance for it, Frec also offers long short direct indexing. It tilts your portfolio towards a factor like growth or value, while shorting part of the index to fund additional long positions, keeping your net market exposure roughly the same as a standard index. The relevance for someone diversifying a concentrated position is simple: this structure seeks pre-tax excess returns and aims to harvest significantly more tax losses than a classic long-only index, and more harvested losses means more capacity to offset the capital gains you realize as you sell down your ASML.

That extra power comes with real tradeoffs. Leverage increases risk, including the risk of larger losses. There is a financing cost on top of the advisory fee, and minimums are higher, starting at $100,000 for the 140/40 strategy and $500,000 for the more aggressive tiers.

Classic direct indexing, for basic index investing with tax benefits

For cash from a sale, or for money you are investing fresh, Frec’s classic direct indexing tracks indices like the S&P 500 starting at just 0.09% fees and a $20,000 minimum. Same idea without leverage and a lower minimum resulting in a diversified, tax-aware portfolio that can still harvest tax losses as it goes.

Two more tools worth knowing

If you need cash but do not want to sell and trigger gains, a low-interest portfolio line of credit lets you borrow against your portfolio. And if you have already sold and are sitting on cash, Frec Treasury is a place to hold it and earn yield while you decide what is next.

Frec’s exclusive offer for ASML employees

Frec runs a dedicated program for people who work at ASML, with current offer details and program terms on the program page. If you are weighing what to do with vested ASML, that is the place to start.

See the Frec program for ASML employees

Frequently asked questions

Do I have to sell all my ASML at once? No. The point of a tax-aware approach is to avoid that. With Frec, you have multiple options to diversify in a way that works best for you.

Will I still owe taxes when I diversify? Most likely some, yes. Selling appreciated stock is a taxable event. The goal is not to make taxes disappear; it’s to manage them, partly by using harvested losses to offset gains. Your specific outcome depends on your situation, so please consult your tax advisor or CPA.

Does it matter how long I have held my vested shares? Yes. Shares held more than a year after they vest are taxed at long-term capital gains rates when you sell, which are lower than the short-term rates that apply to shares held a year or less. The holding period is measured from the vest date, not the original grant date.

Can I use Diversify or long short while I still work at ASML? Maybe, but check first. Many employees use Long short and simply exclude their employer stock.

What is the minimum to get started? Frec Diversify starts at $100,000. Long short starts at $100,000. Classic direct indexing starts at $20,000.

Is this only for current ASML employees? The program is aimed at ASML employees, but Frec’s products are available to any eligible US resident with a taxable account. Check the program page for current eligibility and terms.

Does this help inside my 401(k) or IRA? No. Tax-loss harvesting only matters in a taxable account. Retirement accounts are already tax-advantaged, so there are no capital gains to offset.

Important disclosures

The information here is educational and is not tax, legal, or investment advice. Tax outcomes depend on your individual circumstances; please consult your tax advisor or CPA.

Investing involves risk, including the possible loss of principal. Past performance and any hypothetical examples do not guarantee future results. Diversification does not ensure a profit or protect against loss.

Please consult your tax advisor or CPA for guidance specific to your tax situation.

Direct indexing fees and minimums are stated as of publication and are subject to change; see frec.com/pricing for current terms. Frec Diversify and long short direct indexing use leverage and short positions, which can increase risk, including the risk of amplified losses, and involve a financing cost; these strategies may be subject to your employer’s policies on hedging, pledging, and trading company stock. A portfolio line of credit involves borrowing on margin, which can increase investing risk; read Frec’s Margin Disclosure before borrowing. Frec Treasury is not a bank deposit, is not FDIC-insured, and yields fluctuate with market conditions.

Frec refers to Frec Markets, Inc., and its wholly owned subsidiaries, Frec Securities LLC (Broker-Dealer, FINRA and SIPC member) and Frec Advisers LLC (Registered Investment Adviser). Frec is only available to US residents. By using frec.com you accept our Terms of Use and Privacy Policy. See our Form CRS for the services and differences between the entities.

Sources and further reading

The general tax and investing concepts in this article are drawn from public, authoritative sources: the IRS on capital gains, holding periods, and capital losses (irs.gov/taxtopics/tc409); Charles Schwab on how RSUs are taxed at vesting and sale (schwab.com/learn/story/rsu-taxes-and-psu-taxes); and the SEC’s investor education on asset allocation and diversification (investor.gov/introduction-investing/getting-started/asset-allocation). For your own situation, consult a qualified tax professional.