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Comment by kshacker | Hacker News Reader

Absolutely this. Imagine what a Facebook millionaire could buy when the stock was above 200 and now 140. 30% less down payment, no? Imagine what an Apple employee could put down at 235 vs at 140? Imagine what a Netflix employee could put down by cashing out at 400? Of course rates matter but from what I hear they will not go up much more from here. Eventually these companies will recover and most of them will go higher (they are becoming de facto monopolies) and the watch the prices although it may be a couple of years, but you never know, the stock printing machine is still running.

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Oh wow this comment blew up, a bit. Not a regular here so did not see until now. A few additional comments if it matters:

1. Not everyone is a boglehead (well diversified every single minute of life). People do remain married to the company they work for. Even if it is 20% of high earners, it is a big number for bay area.

2. Even if you wanted to be diversified, the lessons of Enron and 2008 are too old for many. So you sell GOOG and invest in ... Netflix? Amazon? Facebook? NVDA? In the leading companies of the past decade, you traded one devil for the other. Even without insider product knowledge, you do not want to move away from your thriving neo-monopolist.

3. People do diversify but in small numbers. It is anecdotal data but people would have a million in vested RSUs and they will diversify only 50K to 100K because the fear of taking wrong decision is too great.

4. Many people do diversify from their RSU into housing. There are people (not me) who own 3, 5, 10 houses. For someone owning 3 houses (bank still owns it, but they have rent > payments), the utility of stock diversification is very small, and the next time they accumulate enough RSUs to buy another house, they do. As someone said, most of the banks have added on RSU specialists to amortize the unvested RSUs over the next 4 years and show that income as income that could be used to qualify.

Of course, this is the outcome of the last 10 years of low interest regime. And of course there are many people who do differently, but believe me there are enough people with 6 figure vested RSUs which apart from their house is the single biggest investment they have and they live(d) lucky : until the recent market hiccups.

You're assuming people don't sell their RSU when they get them, which is reckless behaviour.

> which is reckless behaviour.

It depends on the amount of risk and diversification you are looking for as well as where you are in your financial career. For example, if you have no college debt, and can afford to live off of your salary alone, leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price.

Diversification is great but not everyone is in the same financial situation to assume there is a one size fits all rule.

Which is reckless....

The only situation where that makes sense is if you're not only good at whatever job you have, but you're an expert stock picker and you discover through your superior skill that the one stock with the greatest upside is..... your employer!

The argument against your POV is right in your answer: leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price.

If instead of getting $X in RSUs you got $X in 'bonus' cash every month would you turn around and put it right into your employer's stock? Probably not.

Regardless of how confident you are in your employer, most people's single biggest investment is their job. Correlating your investments and your regular income is making an incredibly narrow bet which is reckless unless you can see the future.

> If instead of getting $X in RSUs you got $X in 'bonus' cash every month would you turn around and put it right into your employer's stock? Probably not.

Probably is the key word in this statement. There isn't a one size fits all investment strategy so why are we pretending that one exists.

My decisions to invest in the company I work for or my lack of risk aversion could be based on attributes that are unique to my situation and not yours (or others).

> narrow bet which is reckless unless you can see the future.

This is just another way of saying what OP said that I replied to, its not really addressing the point I am making.

For example, what if I have a lump sum of money in the bank so I can afford to make a risky decision like doubling down on my employer. What if I have a dual income house hold and we can afford to do this because even if I lost everything my spouse would account for enough income to cover our expenses. Again, stop prescribing one size fits all advice because investing and finance are extremely diverse because everyones situation is unique.

The way you describe investing "What if I have a dual income house hold and we can afford to do this because even if I lost everything my spouse would account for enough income to cover our expenses" is a lot closer to gambling.

They are two very different things.

Gambling is gambling, there are different levels of risk and probabilities you will win or lose but investing is all gambling. Saying its anything else is ignorant of reality.

All investing is gambling.

You're going to reply with a chart of the S&P over the last 100 years engaging in the cliche fallacy of thinking that past returns dictate future results.

About seeing the future: one advantage that employees have over investors is the ability to see the future in terms which products are in the pipeline.

One other reason to hold on to stock instead of selling are taxes: in the case of ESPP, holding on for a year (or sometimes more), it can make a huge difference in the case of heavily appreciated stock.

But they can’t see what is in the future pipelines of competitors or other sectors. That’s where diversification comes in. Picking one stock does not work and has never worked. Just because someone is a dev doesn’t mean they can see the future.

It doesn’t matter whether or not an employee can look into the future of a different company: he still has the advantage over others by knowing the roadmap of his own company.

Nor can competition see into their competitors pipeline. This is why investments are a bet just like rolling dice in Vegas. A person has to decide their level of risk tolerance which depends on generally where they are at in life (how far/close to retirement) along with unique attributes of their own current financial situation (how much/little debt, how many/few dependencies, how they want to live their life).

Yes for ESPP but no for RSUs, which is what folks are talking about here. Selling RSUs when they vest incurs $0 capital gains.

For an ESPP, the discount you get from the share price is also considered wages not capital gains (in fact shows up on your W-2 !)

That’s only true for the guaranteed discount on the lock-in price (0-20% depending on the company.)

For a stock with lots of appreciation, the real bonus is in the stock price appreciation in the 2 year during which the price is locked in.

That part gets taxed at capital gains if you hold the stock long enough.

https://www.mystockoptions.com/content/how-long-must-i-hold-...

If this were a material advantage, it would probably be considered insider trading.

I agree that it could be considered insider trading, but the SEC clearly does not, which is all that matters.

It’s simply undeniable that employees know more than others.

And it’s unrealistic to think that none of knowledge would ever be helpful to better predict the stock price.

Material knowledge is one reason why the optimal RSU strategy is to set up a 10b5-1 (https://www.investopedia.com/terms/r/rule-10b5-1.asp) election to sell everything as it vests, then to cancel the election right before it triggers if your material insider knowledge tells you that the next quarter is going to beat market expectations.

Completely legal but obviously ethically dubious.

I'm sure the people who received Facebook at $20 who didn't sell are crying their way to the bank.

> leaving RSUs as company stock when they vest is no different than a non-employee buying shares of that stock at the vest price

Wrong - if an employee holds stock in the company they work for, they are doubly screwed when things turn for the worse at the company. They lose asset value, and they may lose their job. Its a lousy idea to hold more than a trivial amount of stock in the company that employs you.

You’re not talking like an investor. An investor buys something because he thinks it will be worth substantially more in the future. He doesn’t care if there are short-term fluctuations. If you think GOOG will be up 500% by 2024, you aren’t going to sell before then, because as an investor, you aren’t investing with money you need, that’s what salary is for. So it doesn’t matter whether you stop working for the company or not. You have your 6 months living expenses in liquid assets, so you don’t need to seek your investments. With this kind of thinking, the parent is right that an employee not selling RSUs is the same an a non-employee buying stock.

Let’s say Google suddenly goes bankrupt or otherwise blows up, like Bear Sterns or Enron or half the banking industry ten years ago.

The chance of a dev getting the same job with the same comp is suddenly much lower, and will be like that for years, especially if said dev is looking for another job in the Mountain View area.

Google crashing would flood the market with very similar job seekers and would also likely cause FAAN stock prices to tank as well, making their comp much worse in total too.

Sell your RSUs people! :)

Indeed! Also, everyone has a different utility function.

People often evaluate personal risk in terms of money when they really should be evaluating it in terms of utility, which can lead to very different results.

Let’s say you worked at Enron and did this. You would lose your job and the value of your shares on the same day. There are non zero costs to job switching, especially if there is a huge spike in people suddenly on the job market at the same time, in the same area, with the same skillset and the same employer with a bad reputation.

The only time it really makes sense not to sell an RSU instantly is if there is some extra tax consideration that can be avoided by selling slightly later or some similar benefit.

Let's say you worked at Amazon and did this. You would continue to have a job and your equity value would grow substantially. There are worst and best cases, most fall somewhere in the middle. Your anecdote doesn't really change what I said because my point is some are willing to own more risk than others.

Risk is fine but there is no added reward for taking on extra risk that can be diversified away. In theory anyway - if you know material things the markets do not, this obviously changes.

The value of one's total compensation fluctuates with stock price appreciation, even if you sell immediately.

Stock grants vest over a period of 4 years, and are targeted to equal a certain dollar value at the time of grant. If your grant is supposed to equal say $80K/year of stock compensation at the time of grant, and then 3 years later the stock has appreciated 3x, then your effective stock compensation when your stock vests, assuming you sell it immediately, is $240K. Combined with salary and what was supposed to be a $200K/year total comp package is now $360K/year.

I'm told (by a mortgage specialist at a Silicon Valley Wells Fargo branch) that the big banks often count stock compensation of big public tech companies as income for the purposes of determining how much mortgage you can afford (because you can always just sell it as it vests), so this increase in average income is absolutely reflected in housing prices.

I’ve held on to half my RSUs and immediately sold the second half over the past 8 years. In my situation, I already have a diversified portfolio. Keeping those RSUs falls within my risk threshold.

That’s incredibly ignorant that without knowing people’s situation, you brush it off as reckless behavior.

The only thing reckless would be to buy a house while counting on unvested or unsold RSUs.

This might be the case that OP is thinking about.

It’s not reckless to count on RSUs when you want to make the purchase.

But if then the stock goes down, you simply decide to not buy a house at that price.

I definitely don’t sell my ESPP shares when I get them, mostly for tax reasons.

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