Some employers pay their employees shares in the company as part of their overall compensation package. In this way, employees can become owners and feel a greater sense of obligation to the company.
If you don’t own any stock in your company, you may be less inclined to join early or leave late. Without your company’s inventory, you might walk past the hallway trash without picking it up. Instead of putting in the extra effort, you might just do something that won’t get you fired!
Since I started working after college in 1999, I have always received company stock as part of my total compensation. Today my wife and I own Financial Samurai 100% of his.
Company ownership feels good. However, not all company inventories are created equal.
Why You Should Sell Your Shares Regularly
Owning part of the company you work for is great, but you still need to sell your stock in the company as regularly as you can. Here are 4 main reasons why.
1) Diversification. You are already heavily leveraged by your company.
For most people, their career is their number one money maker. The better your company is, the better you are likely to be, and vice versa. After that, piling up own shares means more concentration risk.
When your company is doing well, you are thrilled to own as much stock in the company as possible. But it won’t work forever. As a minority investor, most of the decisions are out of your control.
If, due to poor management decisions, the share price starts to stagnate, the company could experience the double blow of falling share prices and job losses. Therefore, it makes sense to sell shares in the company to diversify our exposure.
The longer you work for the company, the more company stock you receive. Therefore, we recommend regularly selling some or all of your holdings each year. Since we rarely sell all of our holdings at once, we continue to own the shares after the sale.
In 1965, the average tenure of companies in the S&P 500 was 33 years. By 1990, it had been 20 years. It is projected to shrink to 14 years by 2026. The reasons are competition, M&A, innovation, and failure.
Your company’s stock price will inevitably fall. Then you’ll be glad you diversified.
2) Build passive investment income.
In addition to diversifying your net worth, you should sell your company’s shares to increase your passive income. It is quite possible that your company’s stock will not pay dividends. For example, most tech growth companies don’t pay dividends.
Therefore, the only way to take advantage of the company’s stock price is to sell it. Once you’ve sold your stock, it’s worth reinvesting your earnings in an asset that generates passive income. These assets include dividend-paying stocks, REITs, bonds, and privately owned real estate.
If your company doesn’t pay dividends, it may be a high beta company that relies heavily on future cash flow. The more a company relies on future cash flows, the more risky it is because the future is so unpredictable.
One of the keys to getting and staying rich is turning crazy money into real assets. And I think companies that don’t pay dividends are kind of crazy money. One day, its stock price may soar. On another day, due to myriad exogenous and endogenous variables, it could collide with Earth.
The more passive investment income you have, the more freedom you have.
3) Pay today to improve your quality of life.
Owning stock in a company is an investment in the future. But we have to live for today. By regularly selling your company’s stock, you can use the proceeds to pay for vacations, buy a safe car, buy a nice home, look after your parents, or pay your school fees.
There’s no point in saving and investing money if you don’t intend to spend it. Even if your company’s stock continues to appreciate in value after the sale, you can still enjoy the experience and the purchases made with the proceeds.
4) to pay taxes;
Restricted Stock Units (RSUs) are taxed in most cases when the shares are delivered upon vesting. Taxable income is the market value of the shares at the time of vesting.
RSU fees are taxed at normal income tax rates. Think of them as cash bonuses linked to the company’s stock price.
Gains (or losses) are taxed as long-term capital gains if shares are held for more than one year after vesting (shares less than one year old are taxed at the short-term capital gains tax rate).
If the value of the company’s shares plummets before the sale, you could face a very unfavorable tax situation.
Example Why it is important to sell your own shares
Let’s say 1,000 RSUs vest at $100 per share and are in marginal federal income tax coverage of 35%. You must pay a marginal federal income tax of $35,000 on your income of $100,000.
However, if you decide to keep your shares after vesting and the stock price drops to $35 per share, you will suffer a loss. Not only is he still left with $35,000 in marginal federal income taxes, but he only has $35,000 left in inventory. That means he didn’t sell the RSU on the vesting date, so he’s left with nothing.
Sure, you have a $65,000 loss that you can use to immediately offset your $65,000 gain for the year. However, it may be difficult to get a profit of $65,000 in such an environment.
Selling vested stock options is good tax liability management. In the dotcom bomb of 2000 and his 2022 bear market, many were burned for not selling their shares after vesting.
![How RSUs are taxed](https://www.financialsamurai.com/wp-content/uploads/2023/03/Blog_RSU_TaxTreatment_KeyDates-2048x912.png.webp)
I’m glad I sold my company stock every year.
Worked at Credit Suisse from 2001 to 2012. Each year, I sold my vested interests to diversify into real estate. After the dotcom bubble of 2000, I decided to buy more real assets. During these 11 years, he sold shares at $20 to $70 per share.
In 2012, I negotiated a retirement package that allowed me to keep my Credit Suisse shares deferred for three years. I continued to sell shares that vested in the $25-$30 range every year from 2013-2015.
Selling Credit Suisse shares at 10% to 30% lower prices each year was uncomfortable. However, I was bearish on the stock business and wanted to sell.
One of the reasons I left in 2012 was that technology was hollowing out our business. Algorithmic trading and the internet meant fees and commissions were heading towards zero. If I had been bullish on the stock market, I would have been 40 for another six years.
RIP old employer
Credit Suisse shares fell to an all-time low of 0.98 shares after being acquired by rival UBS on Monday, March 20, 2023.
It saddens me that during the global financial crisis, Credit Suisse did not need or accept equity financing for relief, and UBS provided $69 billion. It will be interesting to see how fate turns.
CS made too many mistakes after I left the company in 2012. One of its most egregious failures is that he lost $5.5 billion on exposure to Archegos Capital. Archegos Capital was over-leveraged and Credit Suisse was let go as one of Archegos’ prime brokers.
Carefully choose the company you dedicate your life to. Choosing the wrong horse could have wasted a lot of your time. Especially if you didn’t make a living selling your company’s stock.
![Credit Suisse's historical stock price and the importance of regular stock sales](https://i2.wp.com/financialsamurai.com/wp-content/uploads/2023/03/credit-suisse.png?fit=1456,9999)
What if the company’s stock price keeps going up?
If your company’s stock price crashes, it’s easy to feel glad you sold your company stock. But what if your company has a lot of positive momentum? I have a strong feeling that your company’s stock price will continue to rise. Should I sell stocks every year?
I think the answer is still yes, but it may not be 100% of what we can sell each year. Remember that typically only a portion of the shares can be sold each year due to the typical 3-4 year vesting period.
No matter how bullish you are with your company, random exogenous variables will always arise and can result in major setbacks. law changes, bank runs, wars, and an overly aggressive Fed.
In 2022, companies such as Meta have given up five years worth of stock gains. In 2023, Silicon Valley Bank entered government trusteeship, giving up 40 years of equity interest. Stock prices can be corrected in haste.
Sure, you might be lucky to be an early employee at companies like Apple and Google. If at least he hadn’t sold his stock for 10 years, you would be unimaginably rich. But it’s unlikely he’ll last more than a decade after joining the superstar company early.
Remember, reinvested earnings can also do well.
What you can buy with your company’s stock earnings
If you’re bullish on your company, my best recommendation is to sell just enough stock in the company to pay for something that offers you incredible value today. If so, buying a nice home to enjoy life and raise a family is a prime example.
I don’t think I will regret selling my company stock to buy the house I love. Memories made at home are priceless. Positive memories tend to become more valuable over time. Everything else, such as entertainment and meals, can be paid for from your salary.
Plus, the better the company performs, the more rewards you get overall. So even if you sell stock in a company that continues to rise, your salary will continue to rise and so will the rest of your unvested stock.
Carefully analyze the company and industry each year
If you receive company stock every year, be realistic about your company and industry prospects. After a while, you might get so drunk on the company’s Kool-Aid that you don’t even notice the sharks circling around you.
Living in San Francisco, it’s relatively easy to see that banking continues to lag behind the tech industry. As a result, I sold my company stock every year, retired after a total of 13 years, and leveraged technology to start Financial Samurai.
I tried to get a job at Airbnb in 2012, but I didn’t get it. So I incorporated my business and acquired other technology companies instead.
When the government forced so many businesses to close in 2020, I became more bullish about owning an online business that can’t be closed. High business is great.
New challenges ahead
Today, however, the shark revolves around the growth of artificial intelligence and short-form content such as TikTok. Therefore, it might be a good idea to diversify by selling some of my company’s shares.
The reality is that I don’t need the money, so I’m not willing to sell the Financial Samurai. Moreover, my net worth is already highly diversified.
Inviting a minority partner means extra work and headaches. One of the main attractions of running a lifestyle business is that no one has to manage it. Plus, you can always leverage AI to create shorter-form content.
Company stock is only a variable component of total compensation. Treat risky assets like any other risky asset and do your due diligence accordingly.
Reader Questions and Suggestions
Do you regularly sell company stock? When did you regret selling your company’s stock and why? What are your primary purchases with your company’s stock proceeds?
I’m more bullish on real estate now that mortgage rates have plummeted after the local bank failure. Take a look at Fundrise. This is my favorite private real estate platform that primarily invests in Sunbelt with its low valuation and high net rental yield. Government bonds are no longer so attractive.
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