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Did you invest the "extra" cash in FAANG stock(or any other asset class that you thought would give FAANG style return)? I get the fact that equity in a high q

Did you invest the "extra" cash in FAANG stock(or any other asset class that you thought would give FAANG style return)? I get the fact that equity in a high quality startup is available only through employment (or investment). But, for a publicly traded company, it is not so clear why people choose 1.

deanmoriarty 5y ago
The reason why people choose #1 is because your grant vests over 4 years but you lock in the price per share at year 0, so you are effectively leveraged for free, and if the stock grows your comp is going to compound nicely, it is entirely possible that by the end of year 4 your annualized comp would be $1M+. It would be hard to replicate that just with cash, because at year 0 you don’t have the entire value of the grant to allocate and lock in the price, so your invested money cannot compound as much. As for me, I do not invest in FAANG, too risky for me. I prefer to get paid cash higher than FAANG and invest in a diversified portfolio (I’m in VTI/VXUS/BND). With this strategy I am at $3M at 34, and I have almost enough savings to fire before 40 that I don’t need FAANG returns and volatility, SP500 will take care of me just fine with reduced volatility.
- productstudio 5y ago
  Well, one can take a home equity line of credit (interest rates are ridiculously low) and buy shares to "mimic" FAANG employment returns. I suspect people want FAANG jobs (Option 1) 'cos it looks good on resume and the RSU is a side benefit.
  - rahimnathwani 5y ago
    But then you're exposed to the downside risk. With RSUs, if there's a large drop in share price and you don't get an additional grant to make it up, you can always quit and go somewhere else. So it's a bet with asymmetric payoffs for you.
    - productstudio 5y ago
      That is a good point. I guess if FAANG stock price goes down, is it fair to say that we will be in recession (ie entire economy is impacted)?

deanmoriarty 5y ago

The reason why people choose #1 is because your grant vests over 4 years but you lock in the price per share at year 0, so you are effectively leveraged for free, and if the stock grows your comp is going to compound nicely, it is entirely possible that by the end of year 4 your annualized comp would be $1M+. It would be hard to replicate that just with cash, because at year 0 you don’t have the entire value of the grant to allocate and lock in the price, so your invested money cannot compound as much. As for me, I do not invest in FAANG, too risky for me. I prefer to get paid cash higher than FAANG and invest in a diversified portfolio (I’m in VTI/VXUS/BND). With this strategy I am at $3M at 34, and I have almost enough savings to fire before 40 that I don’t need FAANG returns and volatility, SP500 will take care of me just fine with reduced volatility.

productstudio 5y ago
Well, one can take a home equity line of credit (interest rates are ridiculously low) and buy shares to "mimic" FAANG employment returns. I suspect people want FAANG jobs (Option 1) 'cos it looks good on resume and the RSU is a side benefit.
- rahimnathwani 5y ago
  But then you're exposed to the downside risk. With RSUs, if there's a large drop in share price and you don't get an additional grant to make it up, you can always quit and go somewhere else. So it's a bet with asymmetric payoffs for you.
  - productstudio 5y ago
    That is a good point. I guess if FAANG stock price goes down, is it fair to say that we will be in recession (ie entire economy is impacted)?