Many businesses had wonderfully successful IPOS in 2020, 2021, and early 2022, and company stock was worth a lot! This seems like a distant memory, but they were very robust times. Great companies like Rivian, UiPath, and Snowflake went public.
Tough Markets
The last year has been tough, both for workers and the stock market. You may be concerned about your job and, if your shares aren’t worth what they were, what can you do? How can you make progress? It’s ok to feel like you are stuck.
Your old strategy, if you had one, probably doesn’t feel like the right approach. Right now, you might feel reluctant to sell any company stock. If you are looking at your company stock that is now worth much less, here are some of the emotions you are probably feeling.
Strong Emotions
You are anchored to the higher share price in the past, and maybe you feel a little embarrassed for not selling earlier. As long as you hold the shares, you don’t have to admit to yourself that you made a mistake.
Right now, you really don’t need the money so you don’t have to make a decision about it. It’s hard to make a decision if you keep putting it off.
You feel and know in your gut that the company is worth a lot more than its current price and the shares will recover.
This is what I’ve experienced with my clients. Like my clients, to overcome these feelings, you need to develop a strategy for your stock ownership.
The Role of Company Stock Ownership
There’s no certainty about future stock prices, but there is certainty about your finances and what you want. At the moment, are you finances positioned so they can meet your objectives regardless of your company stock? Or do you need your company stock to attain them?
What role does your stock ownership play as you make key life decisions, such as, making work optional at some point, what you can spend on a new house, whether you can afford a vacation property, etc.?
Strategies for Company Stock Ownership
When creating a strategy for your company stock, it shouldn’t depend on the stock price. A plan that depends on your company stock price isn’t a strategy, it’s wishful thinking.
The three strategies are logical and straightforward – sell everything, sell some, or hold.
Sell everything. There are many reasons to undertake this approach. First, you need the money to live the life you want – buy a home, fund your children’s college education, etc. Second, gambling on company stock isn’t worth the stress and compulsive stock price checking. Third, having a well-diversified portfolio calms your nerves, relieves your anxiety, and you attain your financial objectives.
Sell some. If there is a very important financial goal that you want to achieve, this approach works. For example, paying off your student loans, taking some time off work, etc. Sell some shares to achieve this goal and hold the rest of the shares. Your goal is a lot more important than what happens to the rest of the shares and their value.
Hold. Your financial situation is secure and will be fine regardless of what happens to the company stock. You are able to progress toward your goals. Nevertheless, the shares may continue to lose value. During the last 15 months, how often did you tell yourself that the share price will increase? Sometimes it can be catastrophic. Large and successful companies have gone out of business – Enron, Lehman Brothers, and Silicon Valley Bank.
The best strategy for you is the one that reduces your future regret. I will work with you to determine which strategy is best for you.
Sell at a Loss and Lower Your Taxes
Capital losses can reduce taxable income up to $3k per year. Chances are you lost a lot more money than that in 2022. Here are several ways to take advantage of capital losses.
For instance, let’s say that you have Investment Bravo that has lost $50,000 this year. On the other hand, you have nice gains of $47,000 with Investment Charlie. If you choose to sell both this year, the realized gains and losses offset and all of the gains on Investment Charlie are tax free!
This will come in handy when reducing or eliminating a large, concentrated position in your employer’s stock.
If you only have Investment Bravo in your portfolio, you can still use the $50,000 loss, albeit at a slower pace. You can use the $3,000 of losses to reduce your taxable income for 2022. Use the leftover $47,000 of losses in future years to offset capital gains and reduce taxable income.
When it comes to company stock, there are many items to consider and the choices could be overwhelming. Would you like to set up a game plan for your company stock that will give you confidence so you can live an awesome life? Feel free to set up a free consultation.