5 ms·

Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy? Once you've figured that out sell everything except

by new299 9y ago

Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy? Once you've figured that out sell everything except the amount you would buy. It's effectively the same decision, but framing it this way can be helpful. Say your stock is worth 100KUSD. If you had no stock and 100KUSD, would you really spend 100KUSD on the stock? 5K? 10K? That's how I have made these choices in the past. Also, keep at least one share. The information you get by virtue of being a shareholder is often interesting.

koolba 9y ago
It’s almost the same. The biggest difference is the tax consequence of selling. If I have $100K of cash then I have no tax liability to enter any distribution of holdings. If I have $100K of shares of company X then liquidating it will incur a tax consequence of the full value (assuming I got them at a price of zero as a bonus). Now that’s not justification for keeping it in company stock. If anything, you’re better off liquidating it and putting it in something else you’re not going to sell for a long while (say diversified ETFs). But it’s not apples to apples like having the cash to start.
- rosspackard 9y ago
  In publicly traded companies the shares are taxed when they vest. So when they give you the 100k in stock, you are taxed on the 100k (usually they withhold a portion of the stock in vesting programs).
  - arielweisberg 9y ago
    +1 you pay at the time the stock vests. When you sell you pay tax on any gains that occur after the stock vested. If you sell immediately there is no/little tax burden.
    - njarboe 9y ago
      This is why you heard stories of people getting heavily underwater when the stock that had vested crashed. Not many of these stories recently, but the time will come again.
      - kobeya 9y ago
        Not many people have vesting shares of publicly traded companies that are still startup volatility. Blame the IPO market on that.
        njarboe 9y ago
        So how does the IRS treat vesting shares of a company like Uber? I doubt people get to make their own determination of the vest value, but I don't really know how the price is determined exactly.
        kemitche 9y ago
        Vesting _options_ aren't taxed until you exercise them. When you exercise them, the company's most recent valuation will include a value for the common stock you purchased, and you can get hit by AMT on the value increase from the strike price to the current value. Note: I am not a tax expert and my memory is imperfect.
      - charlesdm 9y ago
        If you're worried about the price, either sell a portion to cover the taxes, or buy call options offering downside protection.
        kevinrpope 9y ago
        Nitpick - calls are for upside. Puts provide downside protection.
        charlesdm 9y ago
        Sorry, you're right -- typo. Put is what I wanted to write. Long day!
  - rbrcurtis 9y ago
    Yes but if they give you RSUs, which is probably the case in a publicly traded company, then typically >1/3rd are sold by etrade or whoever to pay those taxes. IE you don't really have to deal with this. Now you DO have to worry about the taxes on capital gains. I recently had to deal with this because I sold my RSUs on the day they vested, thought the 3rd that auto-sold covered me, but didn't realize the .88 cents that the stock rose in the hour before I sold the stock qualified as cap gains and I needed to deal with declaring it. Short term cap gains in this situation basically is just your standard tax rate. If you don't need the money and you think the company's stock is going to do decently over the next year then holding on to your shares for a year to get to long term cap gains isn't necessarily a bad idea. Depends on the company.
jlebar 9y ago
Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy? Once you've figured that out sell everything except the amount you would buy. This is the correct answer. When your publicly traded company pays you in stock, they're just giving you cash in an inconvenient form. If you wouldn't use this hypothetical cash to buy stock in your company, you should liquidate it all immediately. Note that so long as you have unvested stock and intend to stay at your company, you essentially already are invested in your company. And since you said your unvested stock is worth 10x your salary, you'll probably have more exposure to the stock than you ideally want even if you do sell all your shares. So keeping some probably doesn't make much sense.
ipoquestion 9y ago
Not sure if the same question ... but I worked for a company that recently went public. I can't sell for another 5 months. Currently my shares are worth over 300k. I am not sure how I decide what to do when my blackout ends.
- adventured 9y ago
  $300k isn't a life changing amount obviously (in the lavish multi-millionaire sense), yet if you have debt it could pay off perhaps (hopefully?) all the debt you have and put a big down payment on a house depending on where you're at, etc. Point being, that decision is very personal in nature, it depends on your circumstances. So you want to start there, with your personal circumstances. Then after that, it depends on what you think of the company prospects. If you think the company is going to be far more valuable in ten years, regardless of the present stock market bubble, then that should influence your choice. I would suggest avoiding trying to guess where the stock market bubble is going to go, who knows if it's going even higher yet or if it's just about to pop; and focus on things you can control and understand with certainty. Finally, obviously you don't have to liquidate all of your holdings. If you have $50k in student loans, sell at least enough to wipe that out. Debt is one of the few things I overwhelmingly will always argue in favor of eliminating at the first opportunity. There are a lot of ways to earn $300,000. Debt can and often will make your life a living hell on the other hand.
  - ipoquestion 9y ago
    Thank you
ultrasaurus 9y ago
In general: diversify as much as is prudent considering the taxes, your financial situation & your downside risk. Consider long-term vs short term capital gains, but if the stock volatility is higher than the difference (and the difference is meaningful to your financial health) you may still want to sell at the higher tax rate. If you are in high-interest (credit card, payday loan) style debt, you almost always want to sell and retire that debt; nothing can beat that.

by new299 9y ago

Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy? Once you've figured that out sell everything except the amount you would buy. It's effectively the same decision, but framing it this way can be helpful. Say your stock is worth 100KUSD. If you had no stock and 100KUSD, would you really spend 100KUSD on the stock? 5K? 10K? That's how I have made these choices in the past. Also, keep at least one share. The information you get by virtue of being a shareholder is often interesting.

koolba 9y ago

It’s almost the same. The biggest difference is the tax consequence of selling. If I have $100K of cash then I have no tax liability to enter any distribution of holdings. If I have $100K of shares of company X then liquidating it will incur a tax consequence of the full value (assuming I got them at a price of zero as a bonus). Now that’s not justification for keeping it in company stock. If anything, you’re better off liquidating it and putting it in something else you’re not going to sell for a long while (say diversified ETFs). But it’s not apples to apples like having the cash to start.

rosspackard 9y ago
In publicly traded companies the shares are taxed when they vest. So when they give you the 100k in stock, you are taxed on the 100k (usually they withhold a portion of the stock in vesting programs).
- arielweisberg 9y ago
  +1 you pay at the time the stock vests. When you sell you pay tax on any gains that occur after the stock vested. If you sell immediately there is no/little tax burden.
  - njarboe 9y ago
    This is why you heard stories of people getting heavily underwater when the stock that had vested crashed. Not many of these stories recently, but the time will come again.
    - kobeya 9y ago
      Not many people have vesting shares of publicly traded companies that are still startup volatility. Blame the IPO market on that.
      - njarboe 9y ago
        So how does the IRS treat vesting shares of a company like Uber? I doubt people get to make their own determination of the vest value, but I don't really know how the price is determined exactly.
        kemitche 9y ago
        Vesting _options_ aren't taxed until you exercise them. When you exercise them, the company's most recent valuation will include a value for the common stock you purchased, and you can get hit by AMT on the value increase from the strike price to the current value. Note: I am not a tax expert and my memory is imperfect.
    - charlesdm 9y ago
      If you're worried about the price, either sell a portion to cover the taxes, or buy call options offering downside protection.
      - kevinrpope 9y ago
        Nitpick - calls are for upside. Puts provide downside protection.
        charlesdm 9y ago
        Sorry, you're right -- typo. Put is what I wanted to write. Long day!
- rbrcurtis 9y ago
  Yes but if they give you RSUs, which is probably the case in a publicly traded company, then typically >1/3rd are sold by etrade or whoever to pay those taxes. IE you don't really have to deal with this. Now you DO have to worry about the taxes on capital gains. I recently had to deal with this because I sold my RSUs on the day they vested, thought the 3rd that auto-sold covered me, but didn't realize the .88 cents that the stock rose in the hour before I sold the stock qualified as cap gains and I needed to deal with declaring it. Short term cap gains in this situation basically is just your standard tax rate. If you don't need the money and you think the company's stock is going to do decently over the next year then holding on to your shares for a year to get to long term cap gains isn't necessarily a bad idea. Depends on the company.

jlebar 9y ago

Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy? Once you've figured that out sell everything except the amount you would buy. This is the correct answer. When your publicly traded company pays you in stock, they're just giving you cash in an inconvenient form. If you wouldn't use this hypothetical cash to buy stock in your company, you should liquidate it all immediately. Note that so long as you have unvested stock and intend to stay at your company, you essentially already are invested in your company. And since you said your unvested stock is worth 10x your salary, you'll probably have more exposure to the stock than you ideally want even if you do sell all your shares. So keeping some probably doesn't make much sense.

ipoquestion 9y ago

Not sure if the same question ... but I worked for a company that recently went public. I can't sell for another 5 months. Currently my shares are worth over 300k. I am not sure how I decide what to do when my blackout ends.

adventured 9y ago
$300k isn't a life changing amount obviously (in the lavish multi-millionaire sense), yet if you have debt it could pay off perhaps (hopefully?) all the debt you have and put a big down payment on a house depending on where you're at, etc. Point being, that decision is very personal in nature, it depends on your circumstances. So you want to start there, with your personal circumstances. Then after that, it depends on what you think of the company prospects. If you think the company is going to be far more valuable in ten years, regardless of the present stock market bubble, then that should influence your choice. I would suggest avoiding trying to guess where the stock market bubble is going to go, who knows if it's going even higher yet or if it's just about to pop; and focus on things you can control and understand with certainty. Finally, obviously you don't have to liquidate all of your holdings. If you have $50k in student loans, sell at least enough to wipe that out. Debt is one of the few things I overwhelmingly will always argue in favor of eliminating at the first opportunity. There are a lot of ways to earn $300,000. Debt can and often will make your life a living hell on the other hand.
- ipoquestion 9y ago
  Thank you

ultrasaurus 9y ago

In general: diversify as much as is prudent considering the taxes, your financial situation & your downside risk. Consider long-term vs short term capital gains, but if the stock volatility is higher than the difference (and the difference is meaningful to your financial health) you may still want to sell at the higher tax rate. If you are in high-interest (credit card, payday loan) style debt, you almost always want to sell and retire that debt; nothing can beat that.