Company Stock as a Form of Payment and Why You Might Consider Selling It
How Company Stock Influences Employee Behavior Companies often include stock as part of the compensation package for their employees. This gives workers a stake in the company, potentially boosting their commitment and sense of responsibility. They may feel more inclined to put in extra hours or even pick up litter in the hallway.
If you don’t hold any shares in your company, you might not feel the same drive to go above and beyond in your daily tasks.
My Personal Experience with Company Stock Since starting my career in 1999, I’ve always been paid partly in company stocks. First, it was with two investment banks over 13 years, and now, my wife and I fully own Financial Samurai.
Owning part of a company is indeed satisfying, but not all stocks are the same.
The Importance of Selling Your Company Stock Regularly
Owning shares in your company might feel empowering, but it’s wise to sell them from time to time. Here’s why:
- Diversification: You’re tied to your company’s fortunes through your career. Accumulating stock only adds to this risk. Selling some of it helps in diversification.
- Building Passive Investment Income: Selling company stock and investing in dividend-paying assets can give you additional income streams.
- Improving Your Life Today: Regularly selling stock enables you to afford things that can enhance your life now rather than just investing in the future.
- Paying Taxes: Selling stock at the right time helps manage tax liabilities, avoiding unfavorable tax situations.
Examples and Personal Anecdotes
The average company’s tenure on the S&P 500 is decreasing, illustrating the need for diversification. The story of RSUs illustrates the importance of timely selling to avoid losses.
From my experience at Credit Suisse, I saw the value of diversifying into real estate. Even though I had to sell at lower prices sometimes, I knew I was mitigating risks, especially since I saw issues in the equities business.
The Fall of My Old Employer Credit Suisse’s downfall was a sad event. Their acquisition by UBS and their disastrous decisions such as exposure to Archegos Capital were hard to witness, particularly after they survived the financial crisis without bailout financing.
What if Your Company’s Stock Keeps Rising?
Even if you’re optimistic about your company’s prospects, selling stocks periodically is still advisable. Stock prices can fluctuate rapidly, and the likelihood of joining and staying with a superstar company is rare. Investing in tangible assets like a house provides both value and cherished memories.
Keep a Clear Perspective on Your Company and Industry
Evaluate your company and industry objectively. Don’t be blinded by over-optimism. Recognize when it’s time to diversify.
In my case, I saw the banking industry’s decline relative to tech. I sold company stock, left after thirteen years, and embraced technology with Financial Samurai.
Final Thoughts
The choice of holding or selling company stocks should align with both your current needs and future ambitions. Balancing the excitement of owning part of your company with the practical aspects of diversification, income generation, and life quality improvement will help you make the best decision for your financial well-being.
