There’s an alphabet soup of choices with stock compensation – RSUs, ISOs, NSOs, or a combination of all three. It’s up to you to determine what to do with each instrument. So what do you want to do with your stock compensation and how can it best fit into your financial life and strategy?
Options on Options and Other Stock
When it comes to stock compensation, you have three options. You can:
- Keep It
- Spend It
- Save It
Many times keeping all of your stock compensation is simply inertia. The choices with stock compensation are non-existent. You don’t have to do anything. And by not doing anything you are still making a decision. You keep amassing ownership, you avoid paying taxes, pursue more profit, exhibit loyalty to the company, and don’t have FOMO.
However, spending it is at the other end of the spectrum. You can think of your stock compensation as another form of taxable payment for your work at the company, sort of like a bonus. It’s ok to spend your stock compensation. A lot of times you use it for important needs like buying a home, funding college, or paying down debt.
Last, saving it is another scenario. Many times it makes sense to sell some of your company stock and invest the proceeds in other investments. When this occurs many thoughts can go through your head – my stock ownership is worth more than I ever thought, my options are about to expire and I want to realize their value, or my shares have reached optimal tax efficiency and I would like to sell them.
All three of the choices with stock compensation are appropriate. It all depends on your situation and what you would like to do.
Complex Decision Making with Stock Ownership
There is a lot involved when it comes to stock ownership. Emotions run high. You may struggle with personal biases or be scared that you’ll make a mistake. Perhaps you don’t know where to begin?
There’s no way to know what the future stock price will be. You may not know why to keep it or sell it. The strategies of stock ownership, such as minimizing taxes and reducing ownership are worrisome.
The choices with stock compensation are complex. Would you like to set up some time to speak about it?