Is "Cache" Exchange Fund trustworthy? Seeking advice on a $1.5M concentrated position.

[William T]

If your ESPP offers shares at below market value during the purchase rounds, don't forget that you have to pay income tax (google "espp income tax qualifying vs disqualifying") when you sell shares.

@threeonesix Thanks for the info. I am well aware of 3 different parts of earning from ESPP and qualified ESPP. The grant date is a bit confusing and hope I would not do wrong with that. :>

 

[William T]

This is what I was referring to in my post, including the use of an ETF that might be close enough in terms of correlation to your security. As an example, let's say I was trying to hedge Apple exposure. XLK is approximately 11.5% AAPL and has a correlation around 0.90 - 0.98. However, that doesn't mean it will remain that way or will be anywhere close on a short term basis.

In the case of AAPL, there are also 2x and 1x inverse ETF's, but using these would likely fail an audit, i.e. be considered a "constructive sale".

Gotcha. Well, I didn't understand your point at first. Most of my ETFs are VTI, VXUS, AVDV. They are all focus on diversity. So, I probably can not hedge by them.

 

[davidfin]

Hi everyone,

I am preparing to retire in about six months. While my overall portfolio should support my family for the rest of my life, I am facing a major concentration risk: I hold roughly $1.5M in company stock from ESPP and RSU vestings.

If I sell it all at once, the capital gains tax hit will be massive. If I hold it, I am far too exposed to a single company right as I enter retirement. Because I don't yet meet the "Qualified Purchaser" threshold ($5M in investable assets), traditional legacy exchange funds like Eaton Vance are out of reach.

Gemini AI suggested a platform called Cache, which offers exchange funds for my condition. Their documentation states that all fund assets are securely held by BNY Mellon as the custodian, meaning Cache doesn't physically hold the shares. While that structural architecture sounds reliable, this is a life-changing amount of money for me, and I’ve never heard of this company before.

• Should I trust a newer fintech like Cache with this size of an asset?
• Are there other, better ways to mitigate the tax hit while diversifying out of a $1.5M concentrated position before I retire?

I would deeply appreciate any insights, experiences with Cache, or alternative strategy suggestions. Thanks!


Additional information.
I am 51 years old.
Own 2M ETFs. 1.1M concentrated stock. Will receive another 0.5M concentrated stock in few months.
620K USD in 401K
240K in Roth IRA
A house with no martgage.
3000 USD SSN income after 65 years old.

I’ve looked into cache funds. Typically you have tie up funds for up to 7 years.

 

[Winemaker]

My RSU units were taxed at regular income tax rates, if I sold them them outright. If I purchased them. I paid regular income tax on the original basis, then if I sold then, the difference would be taxed at STCG or LTCG rates depending when I sold them. Mine came in tranches, so I nought and sold in tranches. Mine were only in the thousands not millions.

 

[WhenIsItTime]

I recently did an exchange through Morgan Stanley and Eaton Vance. It is important to ensure they will take your holding. I imagine most funds are not taking Nvidia, Apple, etc as they are already overweight. I paid 1% transaction fee and 0.85% per year. My concentrated holding has a 500%+ gain and I was both tired of paying capital gains and no longer comfortable holding it. It's growth has slowed and still increasing in value faster than I want to sell and pay taxes.

I gained immediate diversification, while keeping nearly all the investment invested. The lock-up is superficial in my mind. Most people only withdraw stocks to liquidate, thus they have made a decision to pay the taxes. Even if you hold 7+ years, you only get a basket of stocks returned (~up to 50). Thus, if you exit the fund you may still have a diversification or sector issue which at least defers the original problem. Withdraw early, they charge 1%. That is peanuts to me for the diversification. In fact, weeks after I exchanged my concentrated holding dropped 15%. S/B a temporary issue, but nonetheless makes me feel great about my decision.

I don't know how to predict tax rates in the future, but if similar to what I pay today the return on having nearly 100% invested for 7+ years offsets the fee.

Since there are tradeoffs with any strategy - this one included, I did this with 1/2 my concentrated holding. Thus, not putting all $$ in one strategy.

 

[oiseux]

I recently did an exchange through Morgan Stanley and Eaton Vance. It is important to ensure they will take your holding. I imagine most funds are not taking Nvidia, Apple, etc as they are already overweight. I paid 1% transaction fee and 0.85% per year. My concentrated holding has a 500%+ gain and I was both tired of paying capital gains and no longer comfortable holding it. It's growth has slowed and still increasing in value faster than I want to sell and pay taxes.

snip

Thank you for sharing your experience, including fees/terms. Just a couple of followup questions for you: any insights on why you selected MS/EV? Do you get visibility into the fund you get aligned to?

As background, I'm in the process of comparing offerings and all the variants (as well as alternatives). I'm meeting with the representatives soon.

 

[WhenIsItTime]

Thank you for sharing your experience, including fees/terms. Just a couple of followup questions for you: any insights on why you selected MS/EV? Do you get visibility into the fund you get aligned to?

As background, I'm in the process of comparing offerings and all the variants (as well as alternatives). I'm meeting with the representatives soon.

I think Cache has lower fees and they will probably work out legit over time, but too early for me. I've used eTrade forever and now have a relationship with MS. They presented EV to me and were able to explain all the details. I don't think EV exchange has many investment options. The one I chose follows the S&P 500. They show me the actual shares held in each stock in the portfolio. It's like 700 holdings. They provided historical results, etc. for my decision process.

On another note, I was very sensitive about the transaction date and my stock vs S&P 500 (benchmark for exchange) pricing. Wars starting & stopping, tarriff's on and off, specifics to my concentrated holding were all fluctuating. EV only allows entrants 4 times a year. The pacing items are how much real estate they can buy and mix being presented from clients. Fortunately, my concentrated holding is not a tech or hype stock so there was plenty of room for me. I submitted my intent about 60 days prior to the next transaction window. Both parties can cancel with 24 hours prior to transaction date. That was a blackout period for me of one trading day.

 

[OldShooter]

... Should I trust a newer fintech like Cache with this size of an asset? ...

(Back to our regularly scheduled program ... )

Like you, OP, I would be hesitant where words like "newer" and "fintech" appear together. In lots of disciplines, including finance, it is usually the guys who were out front who have the arrows in their chests.

I would research the he# out of the principals of the company, including BrokerCheck.
Re "size of your asset" if an actual loss of these $$ or a significant lockup period would cause you financial pain I would say "no."

One quotation I remember: Warren Buffett on Long Term Capital Management's demise: “To make money they didn’t have and didn’t need, they risked what they did have and did need." Make sure this isn't you.

HTH