Diversifying from Amazon stock - help!

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RobinsEggBlue
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Diversifying from Amazon stock - help!

Post by RobinsEggBlue » Sat Jun 02, 2018 8:50 am

My husband works for Amazon, and as part of his W-2 compensation regularly gets Amazon stock (it's not a stock option, but actual compensation). He's been working there for 7 years, and we've just let the stock build up without doing anything with it. Our other investments are in our 401k and Roth IRA accounts, which are mostly index funds or target date funds with a few other mutual funds thrown in "for fun". We don't have any other individual stocks other than the Amazon stock. Our total net worth is about $800k, but half of that (yikes) is Amazon stock, a lot of which has massive amounts of unrealized capital gain.

His next set of stocks vest in November and we're trying to figure out what to do going forward. The stock goes into a Raymond James account. Do we need to transfer it to a Vanguard account and then sell it all and buy index funds or target retirement date funds? Any other thoughts or suggestions? Including strategies of what to do with the older Amazon stock with a ton of gains? We're in our mid 30s, so retirement is not on the horizon.

blues008
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Re: Diversifying from Amazon stock - help!

Post by blues008 » Sat Jun 02, 2018 9:20 am

Fairmark has a lot of great information on this topic: http://fairmark.com/execcomp/grants.htm

Honestly though given your situation and need to minimize taxes, i.e., AMT, I would contact a CPA. If you live in an area with lots of other Amazon employees I'm sure many of the CPAs are versed in this type of advice and can provide you with a plan in a short amount of time.


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vineviz
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Re: Diversifying from Amazon stock - help!

Post by vineviz » Sat Jun 02, 2018 11:33 am

RobinsEggBlue wrote:
Sat Jun 02, 2018 8:50 am
His next set of stocks vest in November and we're trying to figure out what to do going forward. The stock goes into a Raymond James account. Do we need to transfer it to a Vanguard account and then sell it all and buy index funds or target retirement date funds? Any other thoughts or suggestions? Including strategies of what to do with the older Amazon stock with a ton of gains? We're in our mid 30s, so retirement is not on the horizon.
Strong +1 to the recommendation to contact a CPA before doing anything else. By way of benchmark though, no competent financial advisor would ever feel comfortable with a client having more than 10-15% of their net worth in a single stock. ESPECIALLY stock in a company that the client works for.

Once you and your CPA have a plan on how much of the stock you are comfortable selling, the first investment IMHO should be in an asset that is likely to provide the MOST diversification to the remaining AMZN stock. Something most likely to zig when AMZN zags.

This asset is probably something like a long-term treasury bond fund (e.g. VGLT or TLT) or an index fund that invests in utility stocks (e.g. VPU or XLU).

For example in the past 15 years, the worst month that Amazon had was -30.48% in July of 2006. imagine a portfolio that is 70% AMZN, 15% TLT, and 15% XLU. In July of 2006, that portfolio would have only lost 18.88% because both TLT and XLU were up. Since 2003 this portfolio would still have grown at rate of 29.18% per year but with 30% less volatility than AMZN alone.

Once AMZN is down under 15% of your portfolio I wouldn't worry about owning VGLT or VPU specifically: by then you 'll probably be just fine with a simple four or five fund broadly diversified portfolio.

As a practical matter, you don't need to transfer anything to Vanguard: anything you want to do with the AMZN stock you can do at Raymond James. If you are otherwise happy with Raymond James, don't make the situation more difficult to execute.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Always passive
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Re: Diversifying from Amazon stock - help!

Post by Always passive » Sat Jun 02, 2018 11:55 am

RobinsEggBlue wrote:
Sat Jun 02, 2018 8:50 am
My husband works for Amazon, and as part of his W-2 compensation regularly gets Amazon stock (it's not a stock option, but actual compensation). He's been working there for 7 years, and we've just let the stock build up without doing anything with it. Our other investments are in our 401k and Roth IRA accounts, which are mostly index funds or target date funds with a few other mutual funds thrown in "for fun". We don't have any other individual stocks other than the Amazon stock. Our total net worth is about $800k, but half of that (yikes) is Amazon stock, a lot of which has massive amounts of unrealized capital gain.

His next set of stocks vest in November and we're trying to figure out what to do going forward. The stock goes into a Raymond James account. Do we need to transfer it to a Vanguard account and then sell it all and buy index funds or target retirement date funds? Any other thoughts or suggestions? Including strategies of what to do with the older Amazon stock with a ton of gains? We're in our mid 30s, so retirement is not on the horizon.
What is wrong with Amazon? I would leave what you have in Amazon and going forward sell to diversify.

drk
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Re: Diversifying from Amazon stock - help!

Post by drk » Sat Jun 02, 2018 12:34 pm

Always passive wrote:
Sat Jun 02, 2018 11:55 am
What is wrong with Amazon? I would leave what you have in Amazon and going forward sell to diversify.
Are you asking what's wrong with relying on a single company for half of a household's earning ability and net worth? Without pointing to all of the classic examples of the last two decades, I'll just note that that's a boat-load of single-stock risk to take on with no realistic expectation of being compensated for doing so.

manedark
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Re: Diversifying from Amazon stock - help!

Post by manedark » Sat Jun 02, 2018 1:21 pm

RobinsEggBlue wrote:
Sat Jun 02, 2018 8:50 am
My husband works for Amazon, and as part of his W-2 compensation regularly gets Amazon stock (it's not a stock option, but actual compensation). He's been working there for 7 years, and we've just let the stock build up without doing anything with it. Our other investments are in our 401k and Roth IRA accounts, which are mostly index funds or target date funds with a few other mutual funds thrown in "for fun". We don't have any other individual stocks other than the Amazon stock. Our total net worth is about $800k, but half of that (yikes) is Amazon stock, a lot of which has massive amounts of unrealized capital gain.

His next set of stocks vest in November and we're trying to figure out what to do going forward. The stock goes into a Raymond James account. Do we need to transfer it to a Vanguard account and then sell it all and buy index funds or target retirement date funds? Any other thoughts or suggestions? Including strategies of what to do with the older Amazon stock with a ton of gains? We're in our mid 30s, so retirement is not on the horizon.
I was in similar situation with my company stock. I have sold 80% of it just a few weeks back and invested it in a 75-25 ratio of stocks vs bonds.
Some things to keep in mind:
1) I think the stocks that you mention are probably RSU (Restricted Stock Units) - you need to make sure the shares are vested and available to sell (some companies put different rules as to when you can sell).
2) Is the Raymond James a brokerage account or just an account to hold the RSU plan. It looks like its the latter (but call to confirm them) - in that case you can sell the stocks and I think you should have an option to "wire" the proceeds to your bank account. (be mindful of the wire transfer fee - if possible avoid it by doing a direct ACH transfer).
3) Once you have the funds in your bank account, open a Vanguard brokerage account to build the portfolio that you desire.

Now this is just the procedural part, but you need to be aware of the tax implication part. For the capital gains part of the stock proceeds (the actual profit over the FMV - fair market price) will be taxed at special rates - 10, 15 or 20% depending on income brackets. This is inevitable and its OK to pay this tax. (the same about any state taxes if they apply).

What you also need to be careful about is to avoid is the NIIT - Net Investment Income Tax - which is 3.8% tax over any income above 250K for married filing jointly. For avoiding or minimizing this - I would say sell your stock in "chunks" (to not go substantially over that limit)- but there are others who would say that just take the complete tax hit and sell the entire stock in one go. Its your choice - but there is no doubt about that you are taking too much risk by investing 50% of your savings in a single stock.

KyleAAA
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Re: Diversifying from Amazon stock - help!

Post by KyleAAA » Sat Jun 02, 2018 1:27 pm

You pay income tax on the value at vest date for RSUs, so there’s no tax advantage to holding them. Yes, sell all vested shares immediately. Amazon is very generous with stock, so there’s more where that came from. Again, sell IMMEDIATELY.

drk
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Re: Diversifying from Amazon stock - help!

Post by drk » Sat Jun 02, 2018 1:56 pm

KyleAAA wrote:
Sat Jun 02, 2018 1:27 pm
You pay income tax on the value at vest date for RSUs, so there’s no tax advantage to holding them. Yes, sell all vested shares immediately. Amazon is very generous with stock, so there’s more where that came from. Again, sell IMMEDIATELY.
I agree with the recommendation to sell, but there are tax disadvantages to selling all of it immediately (e.g., AMT, NIIT, moving into the highest tax bracket), so there is some tax management to be done. Fortunately, recent strategies for unwinding concentrated positions like this are plentiful if one searches the board's history.

Always passive
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Re: Diversifying from Amazon stock - help!

Post by Always passive » Sat Jun 02, 2018 3:53 pm

drk wrote:
Sat Jun 02, 2018 12:34 pm
Always passive wrote:
Sat Jun 02, 2018 11:55 am
What is wrong with Amazon? I would leave what you have in Amazon and going forward sell to diversify.
Are you asking what's wrong with relying on a single company for half of a household's earning ability and net worth? Without pointing to all of the classic examples of the last two decades, I'll just note that that's a boat-load of single-stock risk to take on with no realistic expectation of being compensated for doing so.
I would certainly diversify If i started investing, but given the available information offered by this couple, I am sure that they would have to pay significant capital gain to unload this stock. So, I think that there is no obvious answer, and specially because we are talking about Amazon.

drk
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Re: Diversifying from Amazon stock - help!

Post by drk » Sat Jun 02, 2018 4:27 pm

Always passive wrote:
Sat Jun 02, 2018 3:53 pm
I would certainly diversify If i started investing, but given the available information offered by this couple, I am sure that they would have to pay significant capital gain to unload this stock. So, I think that there is no obvious answer, and specially because we are talking about Amazon.
I don't think we disagree about the plan: they should start to sell this concentrated position with an eye toward tax management. It was a risky bet, but it paid off to such a degree that they'll come out ahead even after paying 15% in capital gains taxes in order to diversify.

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mrspock
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Re: Diversifying from Amazon stock - help!

Post by mrspock » Sat Jun 02, 2018 4:54 pm

RobinsEggBlue wrote:
Sat Jun 02, 2018 8:50 am
My husband works for Amazon, and as part of his W-2 compensation regularly gets Amazon stock (it's not a stock option, but actual compensation). He's been working there for 7 years, and we've just let the stock build up without doing anything with it. Our other investments are in our 401k and Roth IRA accounts, which are mostly index funds or target date funds with a few other mutual funds thrown in "for fun". We don't have any other individual stocks other than the Amazon stock. Our total net worth is about $800k, but half of that (yikes) is Amazon stock, a lot of which has massive amounts of unrealized capital gain.

His next set of stocks vest in November and we're trying to figure out what to do going forward. The stock goes into a Raymond James account. Do we need to transfer it to a Vanguard account and then sell it all and buy index funds or target retirement date funds? Any other thoughts or suggestions? Including strategies of what to do with the older Amazon stock with a ton of gains? We're in our mid 30s, so retirement is not on the horizon.
I had a very similar situation (different company) with a large capital gain on various RSU lots. My approach was: first on a go forward basis always sell, diversify into an appropriate bond/equity mix per the booglehead philosphy (80/20 for me at my age), next, identify the lots with the least capital gains, calculate the taxes due and then sell these lots if they were (collectively) a fairly low percentage of the overall capital gain (for me this meant less than 50%, but this is a judgement/comfort level call). On the last part, what I mean is if say 1/3 of the holdings is responsibile for half the capital gain (possible with rocket ship tech stocks), then you get good diversification “bang for your buck” by selling the other 2/3 portion (by lot) of the holdings. Doing this, I managed to dilute my employers stock to about 20% of my overall portfolio (bonds & equities) over 24 months.

From what I have seen, the most relevant “levers” you have to mitigate capital gains taxes in this situation are:

1. Selling the lots with the least gains
2. Long/short term capital gains rules (useful for lots you might have held for 6 or so months)
3. Keeping income below the various tax thresholds

Ultimately, if you want to diversify you will have to pay Uncle Sam (who I paid handsomely!) the taxes due. Good luck, and this is a great problem to have!

aaja
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Re: Diversifying from Amazon stock - help!

Post by aaja » Sat Jun 02, 2018 5:16 pm

In a very similar situation and have been selling in chunks every few months. Not ideal but my personal preference. Please note the very first step is to ensure any new lots that vest need to be sold immediately.

Another option I did not see on this thread is donor advised funds. This will save you a bunch of taxes on the capital gains if you anyways plan to donate money over the coming years.

https://www.bogleheads.org/wiki/Donor_advised_fund

rolandtorres
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Re: Diversifying from Amazon stock - help!

Post by rolandtorres » Sat Jun 02, 2018 6:04 pm

Kitces's recent posting may be useful

https://www.kitces.com/blog/strategies- ... ted-stock/

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randomizer
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Re: Diversifying from Amazon stock - help!

Post by randomizer » Sat Jun 02, 2018 6:24 pm

Just sell it, take the tax hit, buy a broad index fund and start sleeping well at night.
87.5:12.5, EM tilt — HODL the course!

manedark
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Re: Diversifying from Amazon stock - help!

Post by manedark » Sat Jun 02, 2018 6:45 pm

mrspock wrote:
Sat Jun 02, 2018 4:54 pm
RobinsEggBlue wrote:
Sat Jun 02, 2018 8:50 am
My husband works for Amazon, and as part of his W-2 compensation regularly gets Amazon stock (it's not a stock option, but actual compensation). He's been working there for 7 years, and we've just let the stock build up without doing anything with it. Our other investments are in our 401k and Roth IRA accounts, which are mostly index funds or target date funds with a few other mutual funds thrown in "for fun". We don't have any other individual stocks other than the Amazon stock. Our total net worth is about $800k, but half of that (yikes) is Amazon stock, a lot of which has massive amounts of unrealized capital gain.

His next set of stocks vest in November and we're trying to figure out what to do going forward. The stock goes into a Raymond James account. Do we need to transfer it to a Vanguard account and then sell it all and buy index funds or target retirement date funds? Any other thoughts or suggestions? Including strategies of what to do with the older Amazon stock with a ton of gains? We're in our mid 30s, so retirement is not on the horizon.
I had a very similar situation (different company) with a large capital gain on various RSU lots. My approach was: first on a go forward basis always sell, diversify into an appropriate bond/equity mix per the booglehead philosphy (80/20 for me at my age), next, identify the lots with the least capital gains, calculate the taxes due and then sell these lots if they were (collectively) a fairly low percentage of the overall capital gain (for me this meant less than 50%, but this is a judgement/comfort level call). On the last part, what I mean is if say 1/3 of the holdings is responsibile for half the capital gain (possible with rocket ship tech stocks), then you get good diversification “bang for your buck” by selling the other 2/3 portion (by lot) of the holdings. Doing this, I managed to dilute my employers stock to about 20% of my overall portfolio (bonds & equities) over 24 months.

From what I have seen, the most relevant “levers” you have to mitigate capital gains taxes in this situation are:

1. Selling the lots with the least gains
2. Long/short term capital gains rules (useful for lots you might have held for 6 or so months)
3. Keeping income below the various tax thresholds

Ultimately, if you want to diversify you will have to pay Uncle Sam (who I paid handsomely!) the taxes due. Good luck, and this is a great problem to have!
Well said. But lot selection can only take you so far. I think in their case avoiding NIIT and AMT should be the main concern.

novemberrain
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Re: Diversifying from Amazon stock - help!

Post by novemberrain » Sat Jun 02, 2018 7:53 pm

I would suggest sticking with amazon stock. It is a 700B company now. I don't see why it cant be a 1 TN+ company in the near future.

RobinsEggBlue
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Re: Diversifying from Amazon stock - help!

Post by RobinsEggBlue » Sat Jun 02, 2018 8:36 pm

Thank you for all the great advice and helpful links!

I actually am a CPA, so I'm aware of AMT and NIIT issues. I am going to run some hypotheticals on my tax prep software at work on Monday. I just wanted to check if there was something I wasn't thinking of. The answer is -- pretty much no, we just have to suck it up and pay capital gains.

This is one of those situations where I pay a lot more attention to our day to day finances and didn't realize quite how much stock he had or how much and how quickly it had grown-- I was taught to have a set it and forget it mindset towards investments growing up, so I don't frequently monitor them. We were just going through all our accounts this morning during a big picture conversation and I realized what a massive percentage of our net worth the Amazon stock is and freaked out. Amazon also does their 401k match with Amazon stock, so it's actually a little "worse" than I even thought during my initial freak out, since part of his 401k is Amazon stock too. So... yeah. Guess we better get ready to write a check to Uncle Sam. Oh well, in the grand scheme of things, that's a problem I'm happy to have.

Thank you all again!

SDLinguist
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Re: Diversifying from Amazon stock - help!

Post by SDLinguist » Sun Jun 03, 2018 8:20 am

At least you can sell all the 401k stock in one go without thinking about the taxes.

drk
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Re: Diversifying from Amazon stock - help!

Post by drk » Sun Jun 03, 2018 12:01 pm

RobinsEggBlue wrote:
Sat Jun 02, 2018 8:36 pm
Thank you for all the great advice and helpful links!

I actually am a CPA, so I'm aware of AMT and NIIT issues. I am going to run some hypotheticals on my tax prep software at work on Monday. I just wanted to check if there was something I wasn't thinking of. The answer is -- pretty much no, we just have to suck it up and pay capital gains.

This is one of those situations where I pay a lot more attention to our day to day finances and didn't realize quite how much stock he had or how much and how quickly it had grown-- I was taught to have a set it and forget it mindset towards investments growing up, so I don't frequently monitor them. We were just going through all our accounts this morning during a big picture conversation and I realized what a massive percentage of our net worth the Amazon stock is and freaked out. Amazon also does their 401k match with Amazon stock, so it's actually a little "worse" than I even thought during my initial freak out, since part of his 401k is Amazon stock too. So... yeah. Guess we better get ready to write a check to Uncle Sam. Oh well, in the grand scheme of things, that's a problem I'm happy to have.

Thank you all again!
Two things that you might consider doing with your husband today:
  1. Set his RSU account to sell-all-on-vest
  2. Submit an exchange in his 401k from Amazon stock to a different election for his company match
Amazon stopped requiring that the company match be in the Amazon stock fund because of legal issues (you know, it looks bad after Enron, WorldCom, and all that).

novemberrain
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Re: Diversifying from Amazon stock - help!

Post by novemberrain » Sun Sep 23, 2018 12:52 am

novemberrain wrote:
Sat Jun 02, 2018 7:53 pm
I would suggest sticking with amazon stock. It is a 700B company now. I don't see why it cant be a 1 TN+ company in the near future.
It reached $1T sooner than I thought

investor2018
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Re: Diversifying from Amazon stock - help!

Post by investor2018 » Thu Nov 29, 2018 6:27 pm

@RobinsEggBlue,

Could you please share your approach you took to diversify from Amazon RSUs?

Thanks

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