Another variable is whether your personal effort materially affects the outcome for the company. If you think your work will dramatically increase the value of the company you may want to own more stock ... presumably though if this is the case it's already reflected in your compensation (and maybe part of that is stocks/options as well).
The way I tend to think about this is that if you're working for the company you're already invested in it to some degree so from a diversification perspective I'd tend to want to own less stock of the company I work for.
Well no, the question supposes you work for the company in either case. If you held $1M in cash, would you invest it all in the company you work for because maybe you can affect the outcome? If not then probably you shouldn't hold onto $1M in equity... if you're perfectly rational that is.
It may be that you have insider information that no one else knows.
Also, it is uncontroversially a bad idea to invest "everything" you have in one company.
But no one could be prosecuted for just not selling stock they receive as compensation.
I work at Google and it astonishes me how surprised people are when I tell them I use autosale, the company program where your stocks are sold immediately as they vest.
They always ask "Don't you think Google stock is going to go up?" And I always reply that yes I do think it will go up but
1) that's not the right question to ask, you should ask whether it will go up more/less than anything else you could invest in with that money
2) My future compensation, both in terms of stock and salary, is already heavily tied to Google's future performance, so I have even more incentive to diversify compared with someone who doesn't work there.
His advice exactly mirrored yours
It's probably a less bad idea to own stock in a company you control on a managerial level (C level or on the board).
[0] https://www.nytimes.com/2001/11/22/business/employees-retire...
If you believe it's a great investment (which you might -- given you work there!) then keep the money in. You might understand the business better than other investors that are not working in the company because you have a better view of the market and/or the stuff that is being worked on. If not, sell and reinvest in a different asset.
If you can beat that difference regularly in the market then you're probably in the wrong industry...
I do say I find it interesting that people even think that if you are going to be paid $x in total compensation it is better to be paid $x-y cash and $y in stock. I guess this sort of magical thinking is why companies do it.
The reasons companies (listed and otherwise) give stock rather than cash are: 1)cashflow - it allows them to compensate people without affecting the cash position of the business 2)tax - sometimes it's more tax-efficient for the company than cash compensation 3)incentivises retention - vesting keeps people on the treadmill, especially if you re-up people while they vest so they would always leave a lot on the table if they walk. This is standard practise at Wall St firms so it's not SV-specific. 4)incentivises long-term value creation - if people get granted at around the fair value of the company when they join, then when they (exercise and) sell, they receive a share in the value they helped to create. It very much more direct than other forms of compensation 5)flexible - it's very difficult in many cases to adjust people's cash comp downwards. On the other hand if you structure a big piece of their annual comp as a discretionary equity bonus you can flex that 6)clawback - unvested equity is easy to claw back in the case of employee malfeasance. Cash is pretty much impossible to get back short of a lawsuit and even then, good luck.
I totally get that people's long-term financial well-being is often too correlated to their employer's stock price, but it's really no mystery why firms do this. It's not at all an SV invention either, it's very similar to the template used for a long time by Wall St firms.
The reason it is used by lots of companies is it is a very effective way of stealing the shareholders money without them squawking.
If the stock is generally not going down and your company does the typical “you pay the lower of the first and last day price of the offering period” thing (a look-back provision), holding the stock is the only way to get preferential tax treatment on that part of the benefit. Of course this isn’t a sure thing; you do risk the stock going down before you finally sell.
It's also easy to get blinkered, and deceive yourself into thinking that the company will be successful despite the warning signs that those outside the company might see.
I worked at a bank during the GFC. And it was easy to believe (perhaps correctly, but that's irrelevant) that we weren't really in that much trouble. We were solvent, we were diversified, we weren't exposed to sub-prime, etc. But the market took a beating to us. And it didn't feel like that was justified. But that simply didn't matter. The stock was in free fall, and even if we were right and the market was "wrong", the market is always right because that's what sets the value. If you could afford to take a long term view, then the price recovered, and it wasn't the end of the world (though there were definitely better performing investment options). But I had colleagues who were leveraged against company stock and were getting margin calls every second day.
Which brings me to my second reason for hating to hold stock in my employer - those colleagues couldn't sell their stock due to insider trading rules. They had to find the money for the margin call, because the fact that they had "much more information and market insight" (as you put it) actually meant they weren't allowed to sell. Holding (public) stock in your employer is a big risk because even if you see the price crumbling, you may not be able to get out, and you just have to take the hit.
So most likely scenario for that risk to materialize involves: Google runs into trouble so needs to lay people off. So at that point, you've lost your job, and all your investments in Google are down for the same reason you lost your job, and because Google is such a large company it's layoffs mean a flood of talent into the labor pool so your future job prospects are effected.
So your safety net of savings becomes far less valuable at exactly the time you use it most.
It almost doesn't matter how safe you think Google is - because by working there you're already massively more invested in it than almost any investor would be.
I'll also admit there's no reason I know of to keep your money in google stock if you work there, but that goes with point #1, not point #2.
When the jig was up, not only were they out of a job, but all those investments evaporated.
You surly don't pay income tax on the gain of already owned stock but CGT.
Back in the day 2000's I did own stock that was worth over 1,000,000 certainly wouldn't have had to have paid income tax if we had been bought out at point - but that was in the UK
With respect to lot identification (what shares did you actually sell for tax purposes), within an account, most brokers will let you elect specific lots or FIFO and I believe the IRS allows you to elect average basis. (There’s no particular advantage to making that election, IMO, so I never looked into it but vaguely recall that being the case.)
Across accounts, except for wash sale treatment, the IRS does not assume that when you sold in account B that you were selling shares acquired in account A.
e.g. if your RSUs are valued at $1000 when they vest and you sell it a few minutes later and the value is now $1005 you'll pay regular income taxes on $1000 and have a $5 capital gain (i.e. when you file your taxes the cost basis for the holding are $1000, not $0)
In general, though, my employee stock is usually not much. If I had a huge windfall of stock, I'd probably consult a financial planner and sell much sooner.
I also think it highly depends on your answer to “how excited are you about the company’s roadmap for the next few years?” and “do you feel like you / the company have more to do on the topic?”
If you really believe that the company's stock price will do well in the future, go ahead and keep some shares. But I would still put a significant percentage in safer investments.
Here are the wise words from the CEO of the first start-up that I worked at, which went public (but I was too junior to make much money): "Remember, at an IPO, the people that know the company best think that it is a very good time to be selling stock."
EDIT: not all wealth managers are scam artists. If you suddenly earn lots of money and don't know what to do with it, find a professional paid by the hour to advise you. Do not listen to the people telling you that anyone charging you for advice is automatically a scammer. Also don't listen to people telling you that it's "not that hard" without any context on your experience and understanding of finance. They have nothing to lose by looking smart and confident on the internet while discussing your money.
It depends on your overall net worth. If the stock represents the majority of your net worth, you might want to diversify across different types of assets - your newly introduced tech stock being on the high-risk end of that spectrum. If on the other hand you have "enough" of your savings in lower-risk assets, then it can make sense to keep all your stock.
This is not good advice. "Wealth managers" are totally useless and exist just to charge you fees and create complexity. I really like mgummelt's comment above; it doesn't have to be more complicated than that!
Either way qualifying any form of professional counsel as "a scam" seems a bit excessive, and also bad avice.
Also, you mention the term "financial advisor". I urge people to remember that there are different kinds of those, including those who know shit and care even less, and all they want is to sign you up to some financial MLM scheme. Source: I know some of the latter kind personally.
If you're worried about a malevolent actor who's willing to commit fraud and openly lie, well, how do you deal with trust for any other kind of professional? Reputation, credentials, reviews, referrals, word-of-mouth, etc.
You can also seek advice from someone independent of handing them your money to invest. You can ask an advisor to tell you what you ought to be doing with a self-directed brokerage account at another firm. I guess it's not impossible that there could be an elaborate scheme to collect commissions even across institutions, but again, you need some sort of trust for the whole project to make any sense.
At that level you would need to look at diversification both on a geographical and sector level.
In the UK I would of course sell enough to use up my CGT allowance - you can also move up to 20k£ into an ISA to put the shares beyond tax for CGT and Dividend Tax
And the Massive buying of indexes bids up the price of shares like FANG's beyond the shares real value.