Many employers provide their employees with company stock as part of their compensation package to foster a sense of belonging and dedication. However, not having this stake could lead to a reduced sense of involvement or commitment at work.
Since starting my career after college in 1999, I’ve been partially paid in company stock, first with two investment banks over 13 years, and now with my full ownership of Financial Samurai. Being part of the company you work for is gratifying, but the value of company stocks can vary greatly.
Here are the reasons why selling some of your company stock from time to time is a smart move:
1. Diversification
Considering your job is probably your main source of income, holding a large amount of company stock adds risk. If the company struggles, you might lose both your job and investment value. Selling shares regularly can reduce this risk.
2. Creating Passive Income
A lot of company stocks, particularly in the tech sector, don’t offer dividends. By selling them, you can invest in income-generating assets like dividend-paying stocks, REITs, bonds, or property, establishing a steadier flow of income.
3. Covering Immediate Needs and Wants
The proceeds from stock sales can be used to fund immediate necessities or lifestyle improvements, from taking vacations to buying a house, without sacrificing your financial future.
4. Handling Tax Obligations
With Restricted Stock Units (RSUs), you’re taxed when they vest. Selling right away can simplify tax matters, especially if the stock’s value decreases later on.
Between 2001-2012, I consistently sold my vested shares at Credit Suisse and diversified into real estate, which proved beneficial as the stock’s value later fluctuated and declined significantly.
But What If Your Company’s Stock Keeps Climbing?
Even in a booming company, it’s wise to sell off some stock every year. Stocks are subject to change due to unpredictable external factors.
Suggestions for Spending the Proceeds from Company Stock
Consider investing in things that bring immediate happiness and value, such as a family home. As your company grows, so will your salary and the value of your remaining shares, compensating for any you sell.
Yearly Review of Your Company and Its Sector
It’s crucial to regularly evaluate your company’s prospects and the risks within its industry. Adjust your stock-selling strategy and investment diversification based on these assessments.
In essence, while company stock is an important aspect of your compensation, it’s wise to manage it carefully. Selling shares periodically can help you maintain financial stability, diversify your portfolio, and enjoy life’s pleasures now while securing your future.
