Many employers offer company stock to their employees as a part of their compensation, encouraging a sense of ownership and commitment to the company. However, the absence of such ownership might result in a lesser sense of responsibility or engagement in the workplace.
Since my post-college career began in 1999, I’ve always been compensated partly in company stock. Initially, it was with two investment banks over 13 years, and now, my wife and I wholly own Financial Samurai. Owning a part of your workplace does feel rewarding, but not all company stocks hold equal value.
Here’s why it’s wise to periodically sell off some of your company stock:
1. Diversification
Your career is likely your primary income source, and having too much company stock increases risk. If the company falters, you could face both job loss and stock devaluation. Regularly selling some stock helps mitigate this risk.
2. Generating Passive Income
Many company stocks, especially in tech, don’t pay dividends. Selling them allows you to invest in assets that do, like dividend stocks, REITs, bonds, or real estate, creating a more stable income stream.
3. Funding Current Needs and Desires
Regular sales of stock can finance immediate needs and enhance your lifestyle, from vacations to home purchases, without compromising future financial security.
4. Managing Tax Liabilities
With RSUs, taxes are due upon vesting. Selling immediately can prevent tax complications if the stock’s value drops later.
From 2001-2012, I sold my vested shares at Credit Suisse, diversifying into real estate. This strategy paid off, especially as the stock value fluctuated and eventually dropped significantly.
What if Your Company Stock Continues to Rise?
Even if your company is thriving, selling a portion of your stock annually is still prudent. Unpredictable external factors can impact stock values drastically.
Advice for Utilizing Company Stock Proceeds
Invest in assets that offer immediate value and joy, like a family home. Remember, as your company succeeds, your salary and remaining stock value will likely increase, balancing out any sold shares.
Annual Evaluation of Your Company and Industry
Always assess the potential and risks associated with your company and its industry. Adapt your strategy accordingly, whether it involves selling stock or diversifying your investments.
In summary, company stock is a valuable part of your compensation but should be managed wisely. Regularly selling a portion helps maintain financial stability, diversify assets, and enjoy life’s immediate pleasures while preparing for the future.
