The Business Brew Diversifying Concentrated Positions While Deferring Taxes with Wes Gray
20 snips
Jun 25, 2025 
Wes Gray, the founder of Alpha Architect, specializes in cost-efficient investing and tax solutions. He discusses innovative strategies for diversifying concentrated investments while deferring taxes using Registered Investment Companies and ETFs. The conversation delves into the complexities of tax implications, including Section 351 and partnership laws. Wes emphasizes the importance of managing concentrated positions for wealth transfer and introduces exchange funds as a viable option for tax-efficient investment diversification.
AI Snips
Chapters
Transcript
Episode notes
ETFs Enable Tax Deferral
- ETFs offer a highly tax-efficient structure as investors can defer taxes by holding ETF shares long-term.
- This tax deferral works because ETF internal trading through creation and redemption mechanisms avoids immediate taxable events.
Tax Code 351 Requires Diversification
- Section 351 tax code allows you to contribute securities to a regulated investment company (RIC) tax-free.
- But it requires diversification: no more than 25% in one stock and top five stocks can't be more than 50%.
Exchange Funds Require Lockup Period
- Exchange funds under partnership tax code allow contributions of concentrated stocks for diversification.
- However, they impose a mandatory seven-year lockup period to prevent immediate tax-free diversification abuse.