It’s common for employers to compensate their employees with shares of company stock. This can make workers feel more invested in the business and motivate them to work harder.
However, if you’re not given any shares in your company, you might not feel as inspired to put in extra effort. Why arrive early or stay late? Why not just do the bare minimum to keep your job?
In my personal experience, I’ve always received company stock as part of my pay package. I’ve worked with investment banks for 13 years, and currently, my wife and I are the sole owners of Financial Samurai.
Owning company stock feels empowering, but it’s essential to recognize that not all company stocks have the same value.
Why You Should Regularly Sell Your Company Stock Owning a part of the company you work for might feel great, but it’s wise to sell some of it now and then. Here are four primary reasons why:
- Diversification. Since your career is often your main income source, owning too much company stock can mean an increased concentration risk. Selling some shares can reduce that risk, especially if bad decisions by senior management lead to a decline in stock value and job loss.
- To build passive investment income. Selling company stock can help you invest in assets that generate passive income, like dividend-paying stocks, REITs, bonds, or real estate. This can be especially valuable if your company doesn’t pay dividends.
- To enhance your current quality of life. By selling company stock, you can afford experiences and purchases that enhance your present life, from vacations to family care.
- To pay taxes. Selling your vested stock options can help manage your tax liabilities. Holding onto shares after vesting can lead to complicated tax situations.
An Example of the Importance of Selling Company Stock Imagine you have 1,000 RSUs that vest at $100/share, putting you in a 35% marginal federal income tax bracket. That would mean $35,000 in taxes. If the share price declines to $35/share, you’re stuck with $35,000 in taxes and only $35,000 in stock. Selling your stock when it vests could prevent this scenario.
My Personal Experience I’ve consistently sold my company stock every year. From 2001 to 2012, I worked at Credit Suisse, selling shares to invest in real estate. After leaving in 2012, I continued to sell the stock.
Credit Suisse’s share price hit an all-time low in 2023 after acquisition by UBS, underscoring the importance of regular selling.
What If the Stock Keeps Going Up? Even if you believe your company’s stock will continue to grow, it’s still wise to sell some each year. Despite your confidence, unforeseeable setbacks can occur.
You might feel lucky to be an early employee at companies like Apple or Google, where holding onto shares could make you rich. But chances of lasting in a superstar company for over a decade are rare.
The Right Investment With Company Stock Proceeds If you’re bullish about your company, selling enough stock to invest in things that matter today, like a home, can be worthwhile. The memories created in a home are invaluable.
Analyzing Your Company And Industry Annually If you receive company stock each year, be realistic about your company’s future and your industry’s prospects. I personally saw banking as a declining industry, which influenced my decisions to sell stock and eventually leave to start my own business.
Today’s business environment has challenges like artificial intelligence and evolving content platforms like TikTok. It might be wise for me to sell some of my company’s stock and diversify, even though I’m not motivated by the need for money.
Conclusion Company stock is a variable component of your overall compensation. Like any risk asset, it requires proper consideration and due diligence. By evaluating your company’s future and diversifying your portfolio, you can minimize risk and maximize the potential rewards. Whether it’s buying a home, enjoying life today, or building passive income, careful management of your company stock can have lasting benefits.