Common Investment Strategies for Wealthy Families, Applied to a W-2 Household

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

The most common investment strategies wealthy families use are not exotic. They write down a target asset allocation, keep a low-cost diversified core, cut back any single stock that has grown too large, place each holding in the account where it is taxed least, harvest losses in taxable accounts, and add private investments only at the edges. For a high-income W-2 family in California or Washington, the strategy that usually matters most is the one people put off: reducing employer stock that piles up from RSU vests.

This guide walks through those strategies in the order they tend to move the numbers for a household earning $750,000 to $3 million, with a worked example comparing a Bay Area family and a Seattle family selling the same block of stock.

Why the usual “wealthy family” advice misses the W-2 household

Most articles on this topic are written for families whose wealth came from selling a business or from inheritance. Their questions are about trusts, private equity access and family LLCs. A dual-income household of a physician and a Genentech scientist, or an Apple engineer and an Amazon director, is in a different position:

• Income is high, but assets are still young. Net worth may be $2 million to $8 million, much of it in a home and in retirement accounts.
• New money arrives every quarter as employer stock. RSU vests keep adding to one company, so the portfolio drifts toward concentration without anyone deciding it should.
• Tax is the largest controllable cost. In California, a married couple can face a combined top marginal rate above 50% on wages, and California taxes capital gains as ordinary income.
• Time is the binding constraint. Two demanding careers and young kids leave little room for rebalancing, tax-lot selection or reading plan documents.

So the strategies below are ranked for that reality, not for a family office managing $200 million.

Strategy 1: A written investment policy, one page long

Wealthy families that keep their money tend to have a written rule set: target allocation (for example 70% stocks, 20% bonds, 10% cash and other), the maximum share any one stock may reach, how often they rebalance, and who is allowed to make changes. Institutions call this an investment policy statement. For a family it can be one page.

The point is not the exact numbers. It is that decisions get made once, calmly, instead of each time the market moves or a vest lands. It also gives the children something to read later, which matters more than it sounds.

Strategy 2: Reduce single-stock concentration from RSUs

RSUs are taxed as wages when the shares are delivered. Many employers withhold federal tax at the optional 22% flat rate for supplemental wages (an employer may instead use the aggregate method), and withholding is a mandatory 37% on supplemental wages above $1,000,000 in the calendar year (IRS Publication 15, 2026). Holding the shares after vest is economically the same as receiving cash and buying your employer’s stock with it. Most families would never do that on purpose with a $300,000 bonus, yet they do it by default with RSUs.

Common ways families bring concentration down:

• Sell at vest. Shares sold right away have little or no additional gain, because your cost basis is the value already taxed as wages. This stops new concentration at almost no tax cost.
• Sell older lots on a schedule. For shares with large gains, a fixed quarterly sale spreads the tax and removes the temptation to time the market.
• Pair sales with harvested losses. Losses from elsewhere in the taxable account can offset the gains (see Strategy 4).
• Give appreciated shares instead of cash. For families who already give to charity, donating long-held shares can avoid the capital gain on those shares.

Insiders subject to trading windows can use a Rule 10b5-1 trading plan, adopted under the company’s insider trading policy, to sell on a preset schedule. That is worth setting up once rather than trying to catch open windows.

Worked example: the same stock sale in California and Washington

Assumptions (illustrative, 2026 tax year, married filing jointly): household W-2 income of $1.2 million, so taxable income is above both the federal 37% bracket start of $768,700 and the 20% long-term capital gains threshold of $613,700. The family sells employer shares worth $400,000 that were held more than a year, with a $250,000 long-term gain. No other capital gains this year.

Two lessons come out of this table. First, in California there is no “wait a year for a lower rate” at the state level: California taxes capital gains as ordinary income (FTB). In this example the whole gain stays below California’s 12.3% bracket, which starts at $1,485,906 of joint taxable income for 2025 (FTB 2025 rate schedules); a larger gain would reach the 13.3% top rate. Holding past one year still lowers the federal rate, but the state bill is the same, which weakens the case for holding concentrated stock longer than needed. Second, a Washington family can often sell a meaningful block each year with no state tax, as long as total long-term gains stay under the state’s standard deduction. Above it, Washington taxes long-term gains at 7%, and 9.9% on taxable gains above $1,000,000 (WA DOR). That makes a steady annual sale schedule especially useful in Washington.

Washington families should also note that the state has enacted a 9.9% income tax on adjusted gross income above $1,000,000, effective January 1, 2028 (WA DOR). How it will interact with the capital gains tax is still pending guidance, which is one more reason to use the low-tax years before 2028 deliberately.

Strategy 3: Put each holding in the right account (asset location)

Asset location means deciding which investments sit in taxable accounts, which in tax-deferred accounts and which in Roth accounts. For a household paying 37% federal plus state tax, it can matter as much as fund choice.

• Fill the tax-advantaged space first. For 2026 each spouse can defer $24,500 into a 401(k). If the plan allows after-tax contributions with in-plan Roth conversion, total additions can reach $72,000 per person including employer money, which is the mega backdoor Roth (IRS Notice 2025-67). For a couple with access, that is significant room every year where growth is never taxed again.
• Bonds and other income-heavy holdings generally belong in tax-deferred accounts, where their interest is not taxed each year at your top rate.
• Broad stock index funds are fairly tax-efficient and are usually the best fit for the taxable account.
• The highest expected-growth holdings tend to go in Roth accounts, since that growth will never be taxed.

Children’s accounts are part of the same picture. A 529 plan grows tax-deferred, and qualified withdrawals for education are federally tax-free. For 2026 each parent can front-load up to $95,000 per child using the five-year gift election (5 x the $19,000 annual exclusion), so a married couple can put up to $190,000 into one child’s 529 at once (Form 709 instructions). California gives no state deduction for 529 contributions, so the benefit there is the tax-free growth, not an upfront break.

Strategy 4: Harvest losses in the taxable account

Tax-loss harvesting means selling an investment that has fallen below what you paid, and buying a similar but not substantially identical one so you stay invested. The realized loss offsets capital gains, including gains from selling RSU shares. If losses exceed gains, up to $3,000 a year ($1,500 if married filing separately) can offset ordinary income, and the rest carries forward to later years (IRS Topic 409).

The trap is the wash-sale rule: if you buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed for now (IRS Publication 550). That includes purchases by your spouse or in your IRA or Roth IRA, and it is easy to trigger by accident when dividends reinvest automatically or when an ESPP purchase lands in the window.

Many wealthy families use direct indexing for this: owning the individual stocks of an index in a separately managed account, so there are more individual losses to harvest. It can also exclude your employer’s stock from the index, which helps with Strategy 2. It works best with a large taxable account and fresh cash to invest; with small balances, the added complexity often is not worth it.

Strategy 5: Keep costs low on the core

A diversified core of low-cost index funds is what most of a wealthy family’s portfolio should look like, even at high income. Fees compound like returns do, in the wrong direction. On a $3 million portfolio, a difference of 0.5% a year in total cost is $15,000 a year before any growth on that money. Ask for every layer of cost in writing: advisory fee, fund expense ratios, and any product commissions.

Strategy 6: Private investments, only at the edges

Private equity, venture funds, private credit and real estate syndications are common among very wealthy families, and the pitches start arriving once you qualify as an accredited investor. For a W-2 household, it helps to apply three tests before saying yes: Is the money truly not needed for 10 years? Does it add something your index core does not already own? Can you understand the fees? Many tech employees already hold an illiquid, high-risk asset in unvested equity, so adding more of the same risk is often the opposite of diversification. A common family rule is a small, fixed cap written into the investment policy.

Strategy 7: Plan the transfer, not just the growth

Investment strategy for wealthy families includes how money will move to the next generation. For 2026, each person can give $19,000 per recipient without using any lifetime exemption, and the federal lifetime estate and gift exclusion is $15,000,000 per person, made permanent and indexed from 2027 (IRS). Few W-2 families with young children will face federal estate tax. Washington is different: its own estate tax exclusion is $3,000,000 for deaths from July 1 through December 31, 2026, and $3,076,000 for deaths in the first half of 2026 (WA DOR), which a Seattle family with a house, retirement accounts and life insurance can reach. For both states, the more pressing items while children are under 12 are a revocable living trust, named guardians and a decision about the age at which children receive money outright. Our estate planning page covers how those pieces fit together, and building generational wealth looks at the longer arc.

Which strategies come first: a decision checklist

1. Does employer stock make up more than the cap you would choose if starting from cash today? If yes, set a sale schedule this quarter.
2. Are both spouses contributing the full $24,500, and does either plan allow mega backdoor Roth contributions?
3. Is there a written allocation target and a rebalancing rule?
4. Are bonds sitting in a taxable account while a 401(k) holds stock index funds?
5. Is anyone checking for wash sales across both spouses’ accounts and ESPP purchases?
6. Do you know your total annual cost, in dollars?
7. Are the will, trust and guardianship documents current?

Most families find the first two items account for most of the value. Our investment and risk management and tax management pages describe how we handle them for families.

Common mistakes we see at this income level

• Holding RSUs “until the price recovers”. The tax was already paid at vest. Each share held is a fresh decision to buy.
• Treating withholding as the tax bill. 22% withholding on vests leaves a balance due for anyone in the 35% or 37% bracket, plus state tax.
• Chasing private deals before the basics. An unused mega backdoor Roth is a cheaper, simpler win than most private funds.
• Making every decision in one spouse’s head. If only one person knows the logins, the sale schedule and the reasons, the strategy stops when that person is unavailable.

What to write down for your kids

The investment policy from Strategy 1 is also the most useful document you can leave your children. A short note on why you sold employer stock even when it felt wrong, why you kept costs low, and why you said no to a tempting private deal teaches more than any account statement. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” A FamilyKnowledge® Library is our name for keeping those notes in one place, and documentation debt explains what happens when nobody does.

Frequently asked questions

What asset allocation do high net worth families use?

There is no single allocation. Many wealthy families hold mostly diversified stocks, with bonds and cash sized to cover several years of planned spending and big upcoming costs such as a home purchase or private school. For a W-2 family, unvested RSUs and future income already act like a large stock position, so the allocation of the liquid portfolio should account for them rather than ignore them.

Is tax-loss harvesting worth it in California?

It can be, because California taxes capital gains at ordinary rates up to 13.3%, so each dollar of gain offset by a harvested loss reduces both federal and state tax that year. Because the replacement holding keeps a lower cost basis, much of the benefit is a deferral rather than a permanent saving. The value depends on having realized gains to offset, such as RSU sales, and on avoiding wash sales across all household accounts, including ESPP purchases.

Should a Washington family sell stock before 2028?

It is a fair question to raise with your tax adviser. Washington has no wage income tax in 2026 and taxes long-term gains only above its standard deduction. The new 9.9% tax on AGI over $1,000,000 starts January 1, 2028, and its interaction with the capital gains tax is still pending guidance, so planned sales over the next two years deserve a look.

Next step

Pull your last brokerage statement and work out what share of your liquid net worth is one company’s stock. If the number surprises you, that is where to start. If you would like a second set of eyes, the Bright Advisers Tax & Wealth Assessment looks at concentration, account placement and tax together.

This article is general education, not individual advice. The right move depends on your family’s full financial picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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