4 ms·

> If you're paid 50% in stock, and the stock falls by 24%, you just took a 12% pay cut. On top of this, my experience is that a shocking number of people gett

> If you're paid 50% in stock, and the stock falls by 24%, you just took a 12% pay cut. On top of this, my experience is that a shocking number of people getting a large part of their comp in RSUs don't diversify when they vest. I don't work at a FAANG, but 1/3 of my TC is RSUs. Most of my coworkers look absolutely aghast whenever I mention that I liquidate all my vested shares as soon as the trading window is open. Many of my friends that do work for FAANGs, getting >50% of their TC as RSUs likewise don't diversify as soon as possible, but hang on to it. What's crazy is if I ask my coworkers "If you had that same amount of vested RSUs in cash, would you invest in our company?" They all laugh and say "no!", but then immediately claim that they won't cash-out and reinvest. Point being I suspect that individual net worths of a wide range of tech workers are getting absolutely destroyed right now.

dboon 4y ago
What about capital gains? I hold mine for a year because I was under the impression that liquidating immediately would cause you to pay short term capital gains rather than long term.
- AnotherGoodName 4y ago
  The stock price has to go up from the purchase price for capital gains. If you sell immediately on vesting this should be 0.
- adam_arthur 4y ago
  The face value of the RSU is treated as income (taxed) when it vests. If the stock then appreciates, you have to hold it for a year to get long term capital gains tax on the appreciated amount (not the original vest amount). So there's no tax advantage to waiting to sell. Only if you wait and it happened to go up in that time, and then you don't want to incur short term cap gains on that appreciation. There is a big tax liability problem if you choose not to sell and the stock declines though. You may end up owing more in taxes than the stock is worth in some cases
  - erik_seaberg 4y ago
    22% of my RSUs (the federal withholding rate on supplemental income) are sold rather than released to me, so only a huge crash could leave me in the hole on my 8%-ish estimated taxes.
    - lupire 4y ago
      A huge crash like 70%, which happened this year?
      - erik_seaberg 4y ago
        Bigger; if I receive $78,000 out of $100,000 in shares and then they drop to $23,000, that still more than covers the $8,000 of under-withholding I need to pay. Granted, $15,000 after tax income would not be what I was hoping for. (I'm ignoring state income tax because my withholding on that happens to be correct.)
- time_to_smile 4y ago
  This would only matter if your stock immediately shot up the moment it vested. All the growth during vesting is taxed as income at the time of vesting. Capital gains only covers the value increase over the year you hold the stock after its vested. If you work at META, and then immediately on vesting diversify and don't touch the stock for a year you'll reap the same capital gains benefits but with a diversified portfolio. You also have a wide range of defensive strategies you can apply that you can't if you're locked into trading windows. Say a META employee was very bullish on FAANG in general and at vesting put all their money in GOOG. If they were nervous about this week's earnings they could have either closed their position to see what happens, or bought defensive puts to lock in a maximum loss. Had they instead chosen to hold META they would have neither of these options. There are cases for recently IPO'd companies where you vest then have a potentially 6+ month lockout period for trading. In those cases it can make sense , provided you have seen substantial gains in that lockout period to keep holding for tax reasons.
  - dboon 4y ago
    Thanks so much! I just sold my RSUs thanks to this info. Very much appreciated.
  - gerbler 4y ago
    This is country specific. The stock grant price and the vest or sale price are used in my country to assess gains, so you still have capital gains to pay even if you sell right after vesting
jcalvinowens 4y ago
> Most of my coworkers look absolutely aghast whenever I mention that I liquidate all my vested shares as soon as the trading window is open. I spent a lot of the last decade at facebook. I immediately cashed out every single vested RSU and plowed the money into broad market ETFs. It always blew my mind how many of my coworkers were willing to leave a huge chunk of their net worth invested in their employer's stock. As you might imagine, I'm feeling pretty good about my strategy right now.
- disgruntledphd2 4y ago
  I spent five years at Facebook (2013-18) and the best move I ever made was to ignore the existence of my shares until 2017. But yeah, generally the right approach is to diversify.
  - lupire 4y ago
    From 2013 to 2020 (at which point the USG turned dollars into Monopoly money), FB only barely outperformed the S&P500 while also being a volatility risk.
    - kevinventullo 4y ago
      Looking at historical prices, that is simply not true. S&P doubled in that time period while FB went up about 8x.
      - disgruntledphd2 4y ago
        Yeah, I literally left at the peak in 2018 before the Q2 earnings. Clearly I was holding the place together ;)
notacoward 4y ago
> a shocking number of people getting a large part of their comp in RSUs don't diversify when they vest. Can confirm. A couple of decades ago I was working at EMC. Back then we got options instead of RSUs, but I basically always cashed out as soon as could and moved the money into other things. I figured I already worked there and had the stock purchase plan and the unvested options, so I didn't need more eggs in that basket. All of my coworkers thought I was crazy ... until I watched many of them ride the stock from $114 down to $3 hoping all along that it would come back up. I was lucky to have learned the lesson the easy way, but I'm pretty sure they all learned it too. Also pretty sure that many of my former FB colleagues are right now doing exactly the same. Twenty years from now, if HN hasn't collapsed into a black hole of toxicity by then, we'll probably be having the exact same discussion about whatever replaces FB. The wheel keeps turning.
- tedsanders 4y ago
  Options are a totally different story than RSUs. If you exercise immediately, you’re throwing away a huge part of their value. From an efficient markets point of view, RSUs should be immediately sold but options should be held until the option premium equals the risk concentration premium. Also, the fact that a single stock once fell from $114 to $3 should have no bearing on decision making.
  - notacoward 4y ago
    > the fact that a single stock once fell from $114 to $3 should have no bearing on decision making Recognizing the possibility that such a thing can occur shouldn't affect decision making? Sounds blinkered and crazy to me. It's exactly how my coworkers lost their shirts. Finance-bro jargon aside, you don't seem to understand basics like the kinds of options given by employers at that time (two types neither the same as the ones you buy on the open market) or even the value of diversification. But sure, go ahead and keep proving my theory about why we won't be having that discussion here in twenty more years.
    - ghaff 4y ago
      And of course that sort of devaluation was not at all rare at the time. EMC was hardly an outlier. I did get rid of some of that EMC stock but held way too much of it even if it recovered some value over time.
kec 4y ago
While you're not wrong, doing this in the last 10 years either had you leaving a ton of money on the table, or diversifying into a highly correlated tech stock / tech driven fund.

dboon 4y ago

What about capital gains? I hold mine for a year because I was under the impression that liquidating immediately would cause you to pay short term capital gains rather than long term.

AnotherGoodName 4y ago
The stock price has to go up from the purchase price for capital gains. If you sell immediately on vesting this should be 0.
adam_arthur 4y ago
The face value of the RSU is treated as income (taxed) when it vests. If the stock then appreciates, you have to hold it for a year to get long term capital gains tax on the appreciated amount (not the original vest amount). So there's no tax advantage to waiting to sell. Only if you wait and it happened to go up in that time, and then you don't want to incur short term cap gains on that appreciation. There is a big tax liability problem if you choose not to sell and the stock declines though. You may end up owing more in taxes than the stock is worth in some cases
- erik_seaberg 4y ago
  22% of my RSUs (the federal withholding rate on supplemental income) are sold rather than released to me, so only a huge crash could leave me in the hole on my 8%-ish estimated taxes.
  - lupire 4y ago
    A huge crash like 70%, which happened this year?
    - erik_seaberg 4y ago
      Bigger; if I receive $78,000 out of $100,000 in shares and then they drop to $23,000, that still more than covers the $8,000 of under-withholding I need to pay. Granted, $15,000 after tax income would not be what I was hoping for. (I'm ignoring state income tax because my withholding on that happens to be correct.)
time_to_smile 4y ago
This would only matter if your stock immediately shot up the moment it vested. All the growth during vesting is taxed as income at the time of vesting. Capital gains only covers the value increase over the year you hold the stock after its vested. If you work at META, and then immediately on vesting diversify and don't touch the stock for a year you'll reap the same capital gains benefits but with a diversified portfolio. You also have a wide range of defensive strategies you can apply that you can't if you're locked into trading windows. Say a META employee was very bullish on FAANG in general and at vesting put all their money in GOOG. If they were nervous about this week's earnings they could have either closed their position to see what happens, or bought defensive puts to lock in a maximum loss. Had they instead chosen to hold META they would have neither of these options. There are cases for recently IPO'd companies where you vest then have a potentially 6+ month lockout period for trading. In those cases it can make sense , provided you have seen substantial gains in that lockout period to keep holding for tax reasons.
- dboon 4y ago
  Thanks so much! I just sold my RSUs thanks to this info. Very much appreciated.
- gerbler 4y ago
  This is country specific. The stock grant price and the vest or sale price are used in my country to assess gains, so you still have capital gains to pay even if you sell right after vesting

jcalvinowens 4y ago

> Most of my coworkers look absolutely aghast whenever I mention that I liquidate all my vested shares as soon as the trading window is open. I spent a lot of the last decade at facebook. I immediately cashed out every single vested RSU and plowed the money into broad market ETFs. It always blew my mind how many of my coworkers were willing to leave a huge chunk of their net worth invested in their employer's stock. As you might imagine, I'm feeling pretty good about my strategy right now.

disgruntledphd2 4y ago
I spent five years at Facebook (2013-18) and the best move I ever made was to ignore the existence of my shares until 2017. But yeah, generally the right approach is to diversify.
- lupire 4y ago
  From 2013 to 2020 (at which point the USG turned dollars into Monopoly money), FB only barely outperformed the S&P500 while also being a volatility risk.
  - kevinventullo 4y ago
    Looking at historical prices, that is simply not true. S&P doubled in that time period while FB went up about 8x.
    - disgruntledphd2 4y ago
      Yeah, I literally left at the peak in 2018 before the Q2 earnings. Clearly I was holding the place together ;)

notacoward 4y ago

> a shocking number of people getting a large part of their comp in RSUs don't diversify when they vest. Can confirm. A couple of decades ago I was working at EMC. Back then we got options instead of RSUs, but I basically always cashed out as soon as could and moved the money into other things. I figured I already worked there and had the stock purchase plan and the unvested options, so I didn't need more eggs in that basket. All of my coworkers thought I was crazy ... until I watched many of them ride the stock from $114 down to $3 hoping all along that it would come back up. I was lucky to have learned the lesson the easy way, but I'm pretty sure they all learned it too. Also pretty sure that many of my former FB colleagues are right now doing exactly the same. Twenty years from now, if HN hasn't collapsed into a black hole of toxicity by then, we'll probably be having the exact same discussion about whatever replaces FB. The wheel keeps turning.

tedsanders 4y ago
Options are a totally different story than RSUs. If you exercise immediately, you’re throwing away a huge part of their value. From an efficient markets point of view, RSUs should be immediately sold but options should be held until the option premium equals the risk concentration premium. Also, the fact that a single stock once fell from $114 to $3 should have no bearing on decision making.
- notacoward 4y ago
  > the fact that a single stock once fell from $114 to $3 should have no bearing on decision making Recognizing the possibility that such a thing can occur shouldn't affect decision making? Sounds blinkered and crazy to me. It's exactly how my coworkers lost their shirts. Finance-bro jargon aside, you don't seem to understand basics like the kinds of options given by employers at that time (two types neither the same as the ones you buy on the open market) or even the value of diversification. But sure, go ahead and keep proving my theory about why we won't be having that discussion here in twenty more years.
  - ghaff 4y ago
    And of course that sort of devaluation was not at all rare at the time. EMC was hardly an outlier. I did get rid of some of that EMC stock but held way too much of it even if it recovered some value over time.

kec 4y ago

While you're not wrong, doing this in the last 10 years either had you leaving a ton of money on the table, or diversifying into a highly correlated tech stock / tech driven fund.