Waiting for Your Vested RSUs to Return to Pre-Recession Levels? Think Again.
Provided by Kim Gaxiola, CFP®
Here in Silicon Valley, we've been very fortunate our corporations have the technology to continue working, even if at home. A lot of tech stocks have not been hit too hard by the market correction. Still others haven't returned to the highs they saw months ago. If your vested restricted stock units (RSUs) haven't done so well, here are some things to consider.
FACT: Your stock has no obligation to return to the high price that you vested in it a few months ago. It's a really hard thing to stomach when you pay taxes on vested shares that are now selling for half the price you paid to own them.
On the day you vest, consider the vested shares a bonus check. That means, sell the vested shares and deposit the funds to your bank account. Better yet, if these are longer term funds you don't need in the next 1-5 years, take the funds and put them in a brokerage account and diversify. It's really painful to sell the stock for half the value you paid taxes on 3-6 months later. This is what some employees of tech companies are experiencing now. "I should have sold when I vested and the price was at a high," say many shareholders after the market drops 30%. Yes, hindsight is always 20/20. When the market is appreciating, it's hard to sell and diversify because you think there's no better place than investing in your company. This is an investor bias that can cause you harm.
Your company wasn't the only company making good profits in the past economic expansion. It wasn't the only stock with double digit returns. Although, past performance doesn't guarantee future results- I'm quite sure there's another stock to diversify your portfolio that performed similar to your company stock, especially when we look at a 5 to 10 year track record. Even one additional holding, would cut your risk. In the event some unthinkable event shattered your company stock, you wouldn't have all your money exposed to the same disaster. Believe me, there is always an unthinkable event on the horizon- pandemic included!
FACT: Selling your stock doesn't mean you are a disloyal employee, nor does it mean you don't appreciate the company, the job, or the people.
Often times there is an emotional pull to owning those shares because you like where you work or feel you'd be disloyal if you sold the shares at a loss. When you make financial decisions with your heart, it doesn't normally work out in your favor. There's a whole field of study called "Behavioral Investing" that can advise you on why you need to have a plan and think logically. Emotions should not play a factor in your investment strategy. Your emotions will eventually lead you to do the wrong thing at the wrong time. If you don't have a sell strategy in place for your Restricted Stock Units, make one. We're here to help you create a plan, and more importantly give you the discipline of executing it.
FACT: Even if your stock outpaced the growth of the broad market before the recession, it doesn't guarantee it will after.
Times are changing. What companies did well prior to the pandemic, may not be the best investments now. Those companies that are adapting to the new set of rules of remote working, creative thinking, shifting products based on demand, these are the companies to watch. The status quo may never be the same. Shouldn't your portfolio reflect the changing dynamics?
Contrary to what most employees believe, waiting for your stock to return to the price you hit on your vesting date, doesn't always make sense. There's an opportunity cost you are taking by waiting for a company stock to return to a higher level, when it's not certain it will. What other companies may return to profitability quicker than yours? Be careful with your bias. Use the loss to your advantage, sell, harvest the tax loss, and diversify. The losses can offset future gains in more profitable investments in the future. Work with a CPA to make sure you reap the benefits of those tax losses. Chances are you still have other restricted stock units that are unvested. The unvested shares give you the opportunity in the future to still benefit if the stock appreciates to pre-recession levels. The diversified portfolio gives you more opportunity to see your portfolio do well in the future, with or without the help of your company stock.
As I spend countless hours listening to the news, reading economists and industry analysts, a new set of companies are on the horizon that will thrive and grow under our new paradigm. Some of those are well known, others are not. I like helping my clients invest in the "no drama" stocks. These are companies that have been performing well under the radar. Often, these stocks are not reported or widely covered by CNBC, Fox, and MSNBC. Remember the media is responsible for a lot of volatility. They like to promote the gains and the losses. Fear keeps the media in business.
However, you don't have to do this alone. We are here to strategize with you. We love stock ownership and the transparency it gives our clients of knowing what they own. When your portfolio is down and you see companies in your account of names you recognize and products you can't live without, we think you will have more patience to ride out the volatility. We work with many tech employees with Restricted Stock Units (RSUs) and we are here to help diversify your high risk, highly concentrated company stock portfolio.
Consider the opportunity, there's a lot riding on it!
Contact our team if you'd like to explore your situation- CLICK HERE to schedule a 15-minute, no-obligation conversation.
We also invite you to listen to us explore this subject further on the "Breaking Money Silence" Podcast with author Kathleen Burns Kingsbury- CLICK HERE
Kim Gaxiola, CFP® may be reached at 800.584.3652 or firstname.lastname@example.org