Ask HN: When do you sell your stock grants? | Hacker News Reader

Ask HN: When do you sell your stock grants?

33 pointswils124556 comments

I'm just about to receive the first chunk of stock from the publicly traded company that I work for. I'm wondering when to sell, and how much. I'm a very risk averse person, so my instinct is to sell it all as soon as I can, since the unvested grants are about 10X my current net worth and I don't want to be too invested in one company.

Lots of my coworkers seem to just hold their stock though. Am I crazy that that's a bad idea? My mind always flashes back to the scenes from The Smartest Guy in the Room, when the CEO of Enron was encouraging his employees to put their 401k's in the company stock.

As a bonus question, at what point do you get a financial advisor? It seems like it'd be a reasonable time to get one, but I don't want to pay a bunch of fees for basic advice.

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Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy?

Once you've figured that out sell everything except the amount you would buy.

It's effectively the same decision, but framing it this way can be helpful. Say your stock is worth 100KUSD. If you had no stock and 100KUSD, would you really spend 100KUSD on the stock? 5K? 10K? That's how I have made these choices in the past.

Also, keep at least one share. The information you get by virtue of being a shareholder is often interesting.

It’s almost the same. The biggest difference is the tax consequence of selling. If I have $100K of cash then I have no tax liability to enter any distribution of holdings. If I have $100K of shares of company X then liquidating it will incur a tax consequence of the full value (assuming I got them at a price of zero as a bonus).

Now that’s not justification for keeping it in company stock. If anything, you’re better off liquidating it and putting it in something else you’re not going to sell for a long while (say diversified ETFs). But it’s not apples to apples like having the cash to start.

In publicly traded companies the shares are taxed when they vest. So when they give you the 100k in stock, you are taxed on the 100k (usually they withhold a portion of the stock in vesting programs).

+1 you pay at the time the stock vests. When you sell you pay tax on any gains that occur after the stock vested. If you sell immediately there is no/little tax burden.

This is why you heard stories of people getting heavily underwater when the stock that had vested crashed. Not many of these stories recently, but the time will come again.

Not many people have vesting shares of publicly traded companies that are still startup volatility. Blame the IPO market on that.

So how does the IRS treat vesting shares of a company like Uber? I doubt people get to make their own determination of the vest value, but I don't really know how the price is determined exactly.

Vesting _options_ aren't taxed until you exercise them.

When you exercise them, the company's most recent valuation will include a value for the common stock you purchased, and you can get hit by AMT on the value increase from the strike price to the current value.

Note: I am not a tax expert and my memory is imperfect.

If you're worried about the price, either sell a portion to cover the taxes, or buy call options offering downside protection.

Nitpick - calls are for upside. Puts provide downside protection.

Sorry, you're right -- typo. Put is what I wanted to write. Long day!

You won't get underwater from a vested stock that crashed; the company bears the responsibility of selling enough shares at the time of vest to cover all the taxes- that said you can end up paying a huge sum in taxes and getting no cash from the deal if it crashes before you sell your half.

You can get in real trouble with options of non-public companies and with ESPP plans. Stock from an ESPP plan, if sold in the first 12 or 18 months of holding (depending on the plan details) will be reported as ordinary income at the time of purchase. If you sell during that 12-18 month period at a loss you will still owe taxes at the full price, and that can get you in a hole. I've heard of people owing 20k taxes on a 5k return because of a panic sell during a market downturn.

I'm just an engineer and not a tax professional, so there may be errors in what I've stated.

No, this is not why you heard such stories. If you use the commonly accepted definition of 'underwater' as applied to financial dealings which is that you owe more for something than it is worth, then....

... you will never go underwater from holding onto a vested stock grant. (This is the situation the OP was asking about.)

... you will never go underwater from holding onto a vested & exercised stock option if you paid taxes out of pocket.

... you may go underwater if you take on debt to finance the tax liability incurred when exercising stock options and the value of the retained stock subsequently drops below the unpaid portion of the debt you undertook to exercise it. (This is the scenario that led to the stories you refer to.)

Yes but if they give you RSUs, which is probably the case in a publicly traded company, then typically >1/3rd are sold by etrade or whoever to pay those taxes. IE you don't really have to deal with this.

Now you DO have to worry about the taxes on capital gains. I recently had to deal with this because I sold my RSUs on the day they vested, thought the 3rd that auto-sold covered me, but didn't realize the .88 cents that the stock rose in the hour before I sold the stock qualified as cap gains and I needed to deal with declaring it. Short term cap gains in this situation basically is just your standard tax rate.

If you don't need the money and you think the company's stock is going to do decently over the next year then holding on to your shares for a year to get to long term cap gains isn't necessarily a bad idea. Depends on the company.

Imagine you had the money today (you'd already, automatically sold all the stock). How much would you buy?

Once you've figured that out sell everything except the amount you would buy.

This is the correct answer. When your publicly traded company pays you in stock, they're just giving you cash in an inconvenient form. If you wouldn't use this hypothetical cash to buy stock in your company, you should liquidate it all immediately.

Note that so long as you have unvested stock and intend to stay at your company, you essentially already are invested in your company. And since you said your unvested stock is worth 10x your salary, you'll probably have more exposure to the stock than you ideally want even if you do sell all your shares. So keeping some probably doesn't make much sense.

Not sure if the same question ... but I worked for a company that recently went public. I can't sell for another 5 months. Currently my shares are worth over 300k. I am not sure how I decide what to do when my blackout ends.

$300k isn't a life changing amount obviously (in the lavish multi-millionaire sense), yet if you have debt it could pay off perhaps (hopefully?) all the debt you have and put a big down payment on a house depending on where you're at, etc.

Point being, that decision is very personal in nature, it depends on your circumstances. So you want to start there, with your personal circumstances. Then after that, it depends on what you think of the company prospects. If you think the company is going to be far more valuable in ten years, regardless of the present stock market bubble, then that should influence your choice. I would suggest avoiding trying to guess where the stock market bubble is going to go, who knows if it's going even higher yet or if it's just about to pop; and focus on things you can control and understand with certainty.

Finally, obviously you don't have to liquidate all of your holdings. If you have $50k in student loans, sell at least enough to wipe that out. Debt is one of the few things I overwhelmingly will always argue in favor of eliminating at the first opportunity. There are a lot of ways to earn $300,000. Debt can and often will make your life a living hell on the other hand.

Thank you

In general: diversify as much as is prudent considering the taxes, your financial situation & your downside risk.

Consider long-term vs short term capital gains, but if the stock volatility is higher than the difference (and the difference is meaningful to your financial health) you may still want to sell at the higher tax rate.

If you are in high-interest (credit card, payday loan) style debt, you almost always want to sell and retire that debt; nothing can beat that.

> Lots of my coworkers seem to just hold their stock though. Am I crazy that that's a bad idea?

They are gambling. If you sell and they hold, they might make more money than you. They might make a lot more money. Or, they might lose most or all it.

Playing the lottery is a bad idea, but lots and lots of people do it.

One way to view it is you can trade your potential (but less likely) future gains for a guarantee today. If you won't feel bad taking your 10x now and watching a co-worker get 100x later, if that possibility doesn't bother you, then sell and don't worry about it.

As far as an advisor, if you have goals and already know exactly how to meet your goals, and you stay on top of your investments, you might not need one. Lots of people are like me and hate actively managing their money. Lots of people don't know what their investment options are and don't have concrete steps in mind for reaching retirement with a specific amount of money.

That said, I've found the fees for financial advice to be worth the money almost always. Similar to getting a lawyer or having someone do my taxes. I usually discover that doing it myself is a mistake and that getting professional help is worth paying for.

> Playing the lottery is a bad idea, but lots and lots of people do it.

There is a big difference in playing the lottery and having shares in publicly traded companies.

The closest to gambling that this is is "putting all of your chips on red".

I would not hold stocks from the company you work for. In a downturn, there will be a threat to your salary and your investment egg simultaneously.

Exactly this. Not only that, but typically there are sell windows with your company that prevent you from being flexible with a sale if there’s a personal emergency.

Better to stay diversified.

That’s a reason not to hold hold all your stock in the company. It’s not a good reason to not take a calculated risk wig some of it. Receiving vested shares of a publicly traded corporation you work for is one of the few situations where you can actually profit on insider information, if you’re share allocation is low enough as to not be caught by special rules. As a general principle you cannot be forced to sell your property. Insider trading is only on buying or selling shares. So if you receive vested shares, and then you decide not to sell based on insider info that you think the stock will go up, And then you finally do so later when that information is public and the stock does go up, that’s not illegal. (I’m not a lawyer, you should consult one etc. etc.)

Prudent financial planning would mean it is wise to put a large chunk of your savings in something other than the company you work for. But rationally optimal financial planning should incorporate the benefits of a vesting stock plan as well. It’s a balance.

> Receiving vested shares of a publicly traded corporation you work for is one of the few situations where you can actually profit on insider information

If you won't be caught by the SEC, you're probably not an insider. If all/most employees know something; it's probably "public" enough information.

That’s not the legal definition of insider trading though.

AFAIK, That's not accurate. You will fall into insider trading irrespective of your share allocation. SEC may not come after you, but that doesn't make it legal.

It’s not “insider trading” if you’re not trading. You have to actually sell. There is no such thing as “insider holding.”

Sell it all as soon as you possibly can.

I've worked for public companies that went from $80/share to $2/share (Sun Microsystems) and from $24 to $4 (Groupon) and in both cases, I knew a LOT of people that just held on, thinking the decline was temporary.

In fact, if it's a regular monthly or quarterly vest, look into setting up a 10b5-1 plan to automatically sell your shares even during blackout periods. The broker handling the shares for you will often do this for free.

The brokerages I've received my RSUs through all give tax election option. I can elect to a) pay money ahead of time and keep 100% of my RSUs, b) sell to cover, where I keep ~70% of each grant and the rest goes towards taxes, or c) sell all immediately, regardless of blackout periods (though I can only change my selection during trading windows).

I had to pick one of them, so I think describing it as "setting up a 10b5-1 plan" might be inflating the difficulty of the process somewhat, even if that might be what I was unknowingly doing at the time.

I sell immediately. But I currently work in a relatively old tech company. My belief is that I already have too much invested in my company with them paying my salary. If I add on having a large portion of my savings as company stock then it would be double the trouble if the company had financial problems which caused the stock to fall and them to lay me off.

I can remember https://en.wikipedia.org/wiki/Enron_scandal and how some people had all of their 401k money in Enron stock. They got laid off and their 401k balance went to $0 :(

Myself I sell my RSUs and invest them in a low cost S&P 500 index fund instead.

Don't get a financial advisor until the generally accepted advise of "Vanguard index funds" doesn't make sense anymore. Typically this is at the point where you're considering a second home or something that costs approximately as much, but if you live in the Bay Area or somewhere similarly expensive, you could do well with an advisor well before reaching that point.

When you do, be aware that financial advisors who take a commission have an incentive to sell you products that will make them money. Look for a fee-for-service FA who has a fiduciary duty to you. NAPFA[0] can help with this. You pay them for their advice. They don't make money off your investments.

[0] https://www.napfa.org

{Random advice from the internet}

+ When you sell, don't broadcast it to people in the office. Office politics may portray it as signaling a 'lack of faith' and there is no upside to publicizing the decision anyway.

+ One way to look at the money from the sale of stock is as the return on an investment. This means that it is ok to protect that return for the future rather than following the conventional advice that it should be risked for further growth. Walking away from the poker table with money in your pocket is not foolish.

+ The general advice of financial advisors is for ordinary individuals to gamble against professional and institutional investors. There's no need to pay a fee for that advice. They pitch a system based on the idea that dumb money can beat well capitalized professionals over time when those well capitalized professionals sole objective is to take dumb money.

+ The booming current market hasn't brought back the 401k's that were wiped out in 2008. Portfolios that lost 50% of their value would need 10 years of sustained after inflation 7% growth to get back to where they were (with no fees while ignoring the time value of money). [1] [2]

Good luck.

[1]: Edit, the growth would have to be specific to an actual portfolio and not generalized to a market or an index.

[2]: Edit, this also assumes no losses after 2008, i.e. someone pulled their money out and sat on it (hard to do with a 401k without incurring a penalty).

Figure out what your tax situation will be before selling. Short-term capital gains are taxed at your ordinary income tax bracket whereas long-term capital gains are taxed no higher than 20%.

If they'll be taxed at the short-term level, wait one year until they turn into long-term capital gains. You'll be saved from paying thousands in taxes.

This.

If you won't need the money immediately; and the company prospects look mediocre to good; keep for a year. Then re-balance your portfolio.

Disagree: you are avoiding taking a gain (assuming the stock grants are below the market value of the stock) in order to avoid taxes (but you will still GAIN money, even after taxes), in exchange for risking that the stock will decline in value.

It all depends on your risk tolerance of course, but avoiding selling at a gain RIGHT NOW in order to avoid taxes is not a good reason.

It totally depends on the company you work for.

I work for a company whose stock is going up. This makes it a great company to hold stock in. Unless, some other company's stock is going up faster. Which there always will be, but I don't necessarily know which one. I could be making more money. The trick is knowing which, unfortunately reading tea leaves is difficult.

So I diversify. I leave some money in my company, I put some money in other investments. That way, if my own company goes down in flames, I am not totally lost, and if they continue going up, then I gain.

What you need to do is understand your company, its products, its history, likely future, and risk factors. Yes that is a lot of stuff to research, but it is the way to sleep better at night while feeling good about yourself and your investments.

Start by reading https://www.amazon.com/Four-Pillars-Investing-Building-Portf...

Your intuition is correct. Holding your employers stock means that if your employer implodes not only do you lose your job you lose a nice chunk of your savings.

Money is fungible. Your vested stock is just the amount of money it's worth today. If you wouldn't go out and buy that much of the stock today then you shouldn't hold it. You should sell it and go buy the thing you would have bought with that money instead. Don't be anchored by the wrong thing.

In my case I strongly prefer diversification and reducing tail risk over potentially more lucrative outcomes that I might get from having concentrated holdings in successful companies.

I would like to say I sell the stock as soon as it vests, and that is my goal, but I've been misbehaving and had a limit order open for 6 months. I really shouldn't do that considering the risk and upside are not at all proportionate.

RE financial advisers:

The #1 rule of financial advice is never take financial advice from someone who takes a percentage of your investments. Anyone who charges based on AUM is only interested in soaking you for fees with expensive investments that give them kickbacks.

You want a fee based adviser if you want one at all. I don't think you do if you are in the accrual stage. Just invest passively in the entire market of things you can cheaply invest in using index funds with a low expense and pick a ratio of stocks to bonds that you are comfortable with and let it grow. The most important skill is staying the course, staying in the market, and purchasing regularly (don't time).

I only own one fund. https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...

It's a wrapper around several other index funds. Simple. I don't have to think about rebalancing or anything else. I'm going to keep buying this fund until I am in my 50s or 60s and have to rethink as my time horizon shortens. When this fund is not available such as my 401k I mimic it's allocation using the available index funds.

I used to try and do it cheaper by buying the underlying funds with lower expense ratios. Gaming taxable vs tax deferred. I lost interest.

If you're risk averse, you might want to invest that money somewhere else. If the company were to start struggling and you lost your job, it would be nice to not have your investment go down at the same time.

I think you have to not only look at your net worth, but your annual salary. There is no stock answer here, but in general if you could not stop working for several years, and your equity is several multiples of you annual salary maybe you should consider selling some. Another way to look at it is what is your goal for stock options in terms of your salary. Are you looking to double it? Quadruple it? It's easier to make a decision if you have a specific financial goal for your grants as opposed to something vague like "enough to retire", or something like that. In terms of financial adviser my advice would be never. At the very least learn as much as you can on your own first. This is a short (15 pages or so) pdf that can go over the basic of saving for retirement with some suggested reading.

https://www.etf.com/docs/IfYouCan.pdf

If after you've done some reading and you have some specific investment you are interested in, maybe it makes some sense.

It's not crazy to hold stock, as long as the company has a good business and management and you think it's prospects are good. But it's not an all or nothing choice. What is crazy is to hold onto stock if you can't afford to wait out a downturn in the stock market, which can be many years.

Currently I liquidate 90% of it, or so, and then use the proceeds to fund my index fund buys and my covered-call/put strategies in a number of other equities. I used to liquidate 100% of it, but things are happening that make me suspect a modest boost to the share price has a slim chance to occur in the next year, so I'm keeping some to share in that benefit, if it happens. If it doesn't, I'm not out that much in terms of the opportunity cost.

I almost always sell immediately. The only times I haven't are if I believe the stock is temporarily depressed and I am highly confident that it will recover. In my 20 year career, I think I've made that decision maybe 2 or 3 times. I am very happy with the results of selling immediately throughout that period. Could I have made more if I held on? Yes. But at a much higher risk, and for me that's not the tradeoff I want.

In my opinion, always be wary of your CEO asking you to buy more company stock. If possible, do your own research or if you are working in the core product team, see where things are going. Or use stop losses and limit orders etc to make full use of the stock brokerage account.

When I got my RSUs in my last company they were worth $45, the company had just announced that the company had lost some customers. While I thought things could only get better from thereon I put in staggered stop loss order - sell x at $42, y at $40 etc, while letting the upside open. I did sell some of the RSUs at $42. Then things turned around and I was lucky to sell some of the stocks at $70.

Recently I quit the company. The quarter just before quitting was terrible. The CEO talked about the stock prices during the All Hands and asked people to pour in some more money into the company stock. This sent alarm bells ringing. I sold everything as soon as the meeting ended.

Then again, this whole thing might not be for every one.

Sell. Diversify. The ONLY reason I can see to hold is if you can get tax benefits from doing so.

I would at least sell 50% (or some number) and keep the rest. I have seen people sell stock bought from options on the first day you could and then live to regret it when it screamed up later. If you sell a portion and keep a portion you always get something, and maybe you will get more later, but never zero.

Never zero? You know companies do go bankrupt, right?

Yes, but the stock doesn't go zero like immediately. You can always put a trigger and get out when it all goes down.

Not if you're in a blackout window.. eg, 2/3 of the year.

Pretty rare for publicly traded companies to just drop to 0.

If you get a typical 4 years grant, on average you already had 2 years of stock market exposure on the price...

As soon as they vest. I'd sell them if I were you. I/you have enough risk tied up with a company simply from receiving a pay cheque from them.

Depends on the kind of stock

RSUs are already taxed, so not selling them is like a conscious decision to buy the company's stock.

Sell stock in your company as soon as you are legally and contractually allowed to do so.

For a case study in why you want to do this, just look at what would have happened if you were paid in IBM stock and laid off in their restructuring in 1993.

It's typically best to sell immediately, unless the stock has a fairly historic pattern and is currently oversold. Instead of looking at the the grant as part of your investment portfolio, simply treat it as a cash bonus...

>unless the stock has a fairly historic pattern and is currently oversold

If you can predict and act on these patterns better than the market, you should go open your own hedge fund.

On the financial advisor front, you can always use a robo advisor service like betterment or Vanguard's.

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