Company IPO'd. What's Next?

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TechGuy89
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Company IPO'd. What's Next?

Post by TechGuy89 » Fri May 03, 2019 12:37 am

Hi Bogleheads. The company I work at just IPO'd and I'll be receiving a large windfall from it. I'm 31, married, no kids, and live in a high COL city. We're renting for at least the next three years because we'll be moving then. My spouse and I make ~$300k/year. My equity is worth about $4M. I've been chatting with some private wealth management groups at some of the typical banks (ME, MS, GS, etc.) that charge ~0.7-1%/year in fees. I've taken the Boggleheads approach for 3 funds for my retirement accounts for years, but I thought I'd check to see what makes sense for this large windfall. I have to imagine these banks do make people money despite their fees, otherwise, why would people use them? I may be naive though. I've also been looking at the robo-management apps. Curious to hear what people recommend!
Last edited by TechGuy89 on Fri May 03, 2019 1:15 pm, edited 1 time in total.

DonIce
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Re: Company IPO'd. What's Next?

Post by DonIce » Fri May 03, 2019 12:47 am

TechGuy89 wrote:
Fri May 03, 2019 12:37 am
I have to imagine these banks do make people money despite their fees, otherwise, why would people use them?
There's a few reasons people use "these banks":

1) Many people are not confident of their ability to manage their own investments or are afraid to do so. They think it is a complex thing that can have better results if done by a professional, such as law or medicine.

2) Some people have serious behavioral issues managing their own investments. For example, they may panic and sell when the market goes down. Or they may get euphoric and put in more money when the market is at a peak. Or they may try to chase the latest and greatest individual stock.

3) Spouses may have different ideas about their finances and investing strategies. Resentment may brew if one spouse makes the financial decisions for the family nest egg, especially if they don't turn out well. By delegating the task of investment to a third party, a couple can commiserate together when their investments do poorly, rather than blaming each other for the poor performance.

All academic evidence points to (1) being strictly false. Any laymen can achieve performance that is better than the average professionally managed fund as long as they follow a simple recipe like the 3 fund portfolio, invest periodically regardless of if the market is low or high, and stay the course. The applicability of (2) and (3) has to be judged on an individual basis. For some people, (2) and (3) may not be issues and so are not worth paying for someone to address, for others, a 1% fee may be well worth it to address (2) and (3).

There's a page on the boglehead wiki about windfalls that provides adequate advice for your situation:
https://www.bogleheads.org/wiki/Managing_a_windfall

JoinToday
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Re: Company IPO'd. What's Next?

Post by JoinToday » Fri May 03, 2019 1:17 am

TechGuy89 wrote:
Fri May 03, 2019 12:37 am
.....
My equity is worth about $4M. I've been chatting with some private wealth management groups at some of the typical banks (ME, MS, GS, etc.) that charge ~0.7-1%/year in fees. .....
0.7% - 1.0% of $4M is $28K - $40K per year. Every year.

I am anal about my investments, takes me 10 minutes per month. That is 2 hours per year. And I bet your "advisor" would spend less time than I would. If I was lazy, 10 minutes every 3 months, or 40 minutes per year (every time stocks issue dividends). Unless you are really, really, really pressed for time, or you make $10K per hour, I would learn to do it myself.
I wish I had learned about index funds 25 years ago

gsmith
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Re: Company IPO'd. What's Next?

Post by gsmith » Fri May 03, 2019 1:25 am

Congrats on your good fortune.
For the added boost in self-confidence, you may wish to consider paying a Fee-Only CFA/and CPA for a couple hour review to minimize taxes and risk.
One of the larger temptations is to adjust your expenses in ways that do not impact your quality of life. Wait until you are certain about the windfall.

I haven't been impressed with the robo-advisors, as tend to invest too heavily in emerging markets, but that was a few years ago, and the models may allow for more customization now.

Best of luck

Minty
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Re: Company IPO'd. What's Next?

Post by Minty » Fri May 03, 2019 1:28 am

TechGuy89 wrote:
Fri May 03, 2019 12:37 am
I have to imagine these banks do make people money despite their fees, otherwise, why would people use them?
Although the bankers who charge a percentage of assets under management have no special insight into the market (if they did, they would manage their own funds and make billions) they are willing to use their honest best guesstimates, notions, and theories to try to make you money with your own funds--so long as you agree to pay them regardless of performance. (Try to find a broker who will charge 50% of the amount by which they beat the S & P 500, and rebate any shortfall!) I think investors use them not because they are successful, but because investors do not compare their results to those of index fund portfolios, combined with one of three additional reasons: (1) They actually believe that some brokers know the future of the market and, motivated by charity, want to share their expertise with the retail investors who happen to come to them; (2) They believe investing is too complicated for an average person and finding the right 15 or 20 funds or stocks only can be done by an expert; or (3) They know that low cost index funds have the best risk-adjusted returns, but they also recognize based on their individual personality that arithmetic and making and sticking to consequential financial decisions is beyond their psychological or intellectual capacity. Put another way, sure the bankers make money for clients, at least in a bull market, just less, on average, than buy-and-hold, index fund portfolios.
Core Four with nominal bonds and TIPS.

Topic Author
TechGuy89
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Re: Company IPO'd. What's Next?

Post by TechGuy89 » Fri May 03, 2019 1:30 am

gsmith wrote:
Fri May 03, 2019 1:25 am
Congrats on your good fortune.
For the added boost in self-confidence, you may wish to consider paying a Fee-Only CFA/and CPA for a couple hour review to minimize taxes and risk.
One of the larger temptations is to adjust your expenses in ways that do not impact your quality of life. Wait until you are certain about the windfall.

I haven't been impressed with the robo-advisors, as tend to invest too heavily in emerging markets, but that was a few years ago, and the models may allow for more customization now.

Best of luck
Thanks! I am in the process of working with a fee-per-hour CPA to create some projects on how to be tax efficient with my stock options in the hope to sell my equity and diversify. He's expensive, at about $250-300/hour (averaged with his team), but I think it could be worth it.

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Wiggums
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Re: Company IPO'd. What's Next?

Post by Wiggums » Fri May 03, 2019 2:07 am

That sounds like a good next step. You don’t want to end up with a large number of proprietary funds and complexity.

Congratulations on your windfall.

Good luck to you.

Valuethinker
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Re: Company IPO'd. What's Next?

Post by Valuethinker » Fri May 03, 2019 3:29 am

TechGuy89 wrote:
Fri May 03, 2019 1:30 am
gsmith wrote:
Fri May 03, 2019 1:25 am
Congrats on your good fortune.
For the added boost in self-confidence, you may wish to consider paying a Fee-Only CFA/and CPA for a couple hour review to minimize taxes and risk.
One of the larger temptations is to adjust your expenses in ways that do not impact your quality of life. Wait until you are certain about the windfall.

I haven't been impressed with the robo-advisors, as tend to invest too heavily in emerging markets, but that was a few years ago, and the models may allow for more customization now.

Best of luck
Thanks! I am in the process of working with a fee-per-hour CPA to create some projects on how to be tax efficient with my stock options in the hope to sell my equity and diversify. He's expensive, at about $250-300/hour (averaged with his team), but I think it could be worth it.
For a good CPA with tax expertise, that sounds dirt cheap.

I live in a HCOL city, London, and you could quote that fee in pounds i.e. 1.3x the dollars and it would be low. For specialist tax advice it can be a lot more.

Look how much money you have at stake. Spending $10k or so getting this right is only a small percentage of the cost of getting it wrong. Tax is hard, that's why there's a profession for dealing with it.

Main question is whether you are buying a house. If you are, you have to put that money in something ultra safe like municipal bonds. Deduct that and then apply what I say below to your residual minus the house price ($2m? More?).

In your shoes, $4m my portfolio would be something like

1m tax advantaged municipal bond fund (if appropriate)
1m Vanguard Total Bond Market or Intermediate Term Treasury bonds*
2m equities split 55% US & 45% global including Emerging Markets**

* I would consider $500k US TIPS fund and $500k IT US Treasury Fund.

** your main problem is the US market has a partial skew towards tech, and some of the EM indices ditto (Alibaba, Tencent, Naspers). You could in fact ditch EM - although I tend to think long term that might not be such a good idea.

You want to tilt away from tech to an extent, if you can. I would consider owning an (international) Value fund, which would tend to do that. For up to 25% of my equity portfolio ie 500k in your case (in fact, I do precisely that). DFA probably has the best value tilt funds, but the Vanguard ones will work.

The only Financial Adviser I would consider working with would be one that would give access to DFA funds.

Out there, I think it was in (defunct) Portfolio magazine, Michael Lewis wrote a piece about a financial adviser to the Hollywood stars. Used to be a Merrill Lynch broker and had seen the light and now used DFA funds, indexation strategies. He, or someone like him, I would deal with. If you can find that article, you should read it.

But if you do it yourself with Vanguard Funds, you are pretty close without using a FA.

TerryDMillerMBA
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Re: Company IPO'd. What's Next?

Post by TerryDMillerMBA » Fri May 03, 2019 3:37 am

JoinToday wrote:
Fri May 03, 2019 1:17 am
TechGuy89 wrote:
Fri May 03, 2019 12:37 am
.....
My equity is worth about $4M. I've been chatting with some private wealth management groups at some of the typical banks (ME, MS, GS, etc.) that charge ~0.7-1%/year in fees. .....
0.7% - 1.0% of $4M is $28K - $40K per year. Every year.

I am anal about my investments, takes me 10 minutes per month. That is 2 hours per year. And I bet your "advisor" would spend less time than I would.

The real danger arises when they spend more time.

carolinaman
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Re: Company IPO'd. What's Next?

Post by carolinaman » Fri May 03, 2019 8:44 am

Congratulations!

1% of $4m is $40k per year. IMO, the 3 fund portfolio works whether you have a little or a lot of money.

I assume your $4M is in company stock and you have limitations on when you can sell some of your stock. One of the rules of investing is to limit the amount invested in any one stock to no more than 10% of your total funds, including company stock. So to the extent allowed by your company, you should convert some of your stock when permitted, taking into consideration taxes as well. It may be worthwhile to pay a CPA or tax savvy adviser to develop a strategy for that but I do not think you need an ongoing AUM adviser. Best wishes.

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RickBoglehead
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Re: Company IPO'd. What's Next?

Post by RickBoglehead » Fri May 03, 2019 8:58 am

You could also have Vanguard PAS manage it. They charge 0.3% AUM up to $5 million, then 0.2%. https://investor.vanguard.com/financial ... visor-fees

If you put the funds at Vanguard in a MM while you decide, you will get Vanguard Flagship status with a free annual financial plan. That plan will basically be what PAS would be telling you to do, although they won't be providing what the CPA is doing for you.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

bloom2708
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Re: Company IPO'd. What's Next?

Post by bloom2708 » Fri May 03, 2019 9:07 am

Congrats!

Is the $4 million still in the company stock? Can you sell shares if it is? I would want this out of the IPO stock. Even if it sat in the Prime Money Market at Vanguard for a couple months. IPOs go way up and they sometimes come right back down.

I would do nothing for 60-90 days and spend time here. $0. $0 per question. $0 per thread reviewed. etc. etc.

You can learn to do it yourself with 1 to 3 (maybe 4 max) index funds. That is why Bogleheads exists.

Read the Wiki, watch the videos, print out the 10 Boglehead Principles and review it. There is a Windfall section to review.

Welcome and congrats again.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

Valuethinker
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Re: Company IPO'd. What's Next?

Post by Valuethinker » Fri May 03, 2019 9:39 am

bloom2708 wrote:
Fri May 03, 2019 9:07 am
Congrats!

Is the $4 million still in the company stock? Can you sell shares if it is? I would want this out of the IPO stock. Even if it sat in the Prime Money Market at Vanguard for a couple months. IPOs go way up and they sometimes come right back down.

I would do nothing for 60-90 days and spend time here. $0. $0 per question. $0 per thread reviewed. etc. etc.

You can learn to do it yourself with 1 to 3 (maybe 4 max) index funds. That is why Bogleheads exists.

Read the Wiki, watch the videos, print out the 10 Boglehead Principles and review it. There is a Windfall section to review.

Welcome and congrats again.
If OP's $4m is still in company stock, it is not $4m. It's nothing.

If so, getting the tax CPA on this ASAP is critical. And selling.

I have (sort of) been there, and seen it go down 90%. I was never worth £1m, except on paper.

Valuethinker
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Re: Company IPO'd. What's Next?

Post by Valuethinker » Fri May 03, 2019 9:41 am

http://content.advisorflex.com/ontarget ... vestor.pdf

by Michael Lewis. About Blaine Lourde.

Everyone who has newly come into money should read that article.

Valuethinker
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Re: Company IPO'd. What's Next?

Post by Valuethinker » Fri May 03, 2019 9:45 am

RickBoglehead wrote:
Fri May 03, 2019 8:58 am
You could also have Vanguard PAS manage it. They charge 0.3% AUM up to $5 million, then 0.2%. https://investor.vanguard.com/financial ... visor-fees

If you put the funds at Vanguard in a MM while you decide, you will get Vanguard Flagship status with a free annual financial plan. That plan will basically be what PAS would be telling you to do, although they won't be providing what the CPA is doing for you.
I don't know the Vanguard service.

But, intrinsically, the arrow of this advice is aimed at the right target. This is how one gets to a reasonable cost of management with, most importantly, no risk of them doing something inappropriately risky.

ryman554
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Re: Company IPO'd. What's Next?

Post by ryman554 » Fri May 03, 2019 9:50 am

Valuethinker wrote:
Fri May 03, 2019 9:39 am

If OP's $4m is still in company stock, it is not $4m. It's nothing.

If so, getting the tax CPA on this ASAP is critical. And selling.

I have (sort of) been there, and seen it go down 90%. I was never worth £1m, except on paper.
Exactly.

The OP has got to get out of the single stock as soon as possible. That may not be for six months or more, depending on restrictions on selling.

It's going to be a big tax hit no matter what, really the only question I can see is if the OP wants to wait the one year to get their ISO qualified, assuming no/minimal options have yet been exercised, and pay only capital gains + 11% (state) + NIIT stuff, or if the OP just sells and pays 39% + 11% + NIIT.

For those that have been through it, am I missing something?

Do you take $2M guaranteed or roll the dice, try for $3M and end up with $1M (or 5+)? I think I know my answer.

Zombies
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Re: Company IPO'd. What's Next?

Post by Zombies » Fri May 03, 2019 11:53 am

There is a “classic” Boglehead approach which is really straightforward here. There are some options to tweak it, which depend on your risk tolerance and comfort level with market fluctuations.

The classic approach is straightforward — sell 100% of the company stock immediately and diversify it into a Three Fund Portfolio.

The options are as follows:

Lump summing: Some are uncomfortable lump-summing a large amount, and prefer dollar cost averaging. FWIW, I’ve lump-summed similar amounts as I believe in its long-term superiority, and think DCA is sub-optimal based on that. The market can handle it just fine (assuming your newly IPO’ed stock is high volume). If you’re concerned, the brokerage that holds your company shares can assist with this, no charge usually.

Which three funds: Since I’m still in a high-income bracket, my three fund portfolio is Total US Stocks, Total International Stocks, and my state’s Muni fund.

Being riskier: Actually, I lied. I’m 60% US Stocks, 30% International Stocks, and 10% Emerging Markets, because I (used to) like gambling. It would be much simpler just to do total international, but I wanted to track some things since I enjoy finance as a hobby. If I was starting over again I’d keep it simpler.

Being really really riskier: If you want, you can keep some of your company stock. I don’t advise this, because the taxes get really complicated (selling old lots when I assume you are getting refreshers with a “Techguy” name, which means you’d have a wash sale if you try to sell existing lots). Some people like to keep “extra” skin in the game, but I always advise folks to sell 100% immediately each vesting cycle, as you are already heavily invested in your company through your salary, benefits, and additional RSU grants that are forthcoming.

Not asked, but here’s some bonus advice:
Lifestyle creep: Personally, I think it’s fine to have some one-off “extraordinary” items (the car you dreamed of, a really fun international trip where you take family members, etc.), as long as they’re not recurring. You’ve earned a lot of money — it’s important to enjoy it. The point of strategies like Bogleheads are financial independence — but especially when you’re young, you have a lot of earning potential ahead of you and shouldn’t save all your money for your heirs. Yes, fully fund 529s for your kids. Yes, always max retirement accounts and plan for a long, early retirement. When we came into a lot of money we probably increased our expenses 75%, but not to the point where our lifestyle drastically changed or we felt out of place with our friends. Give more to charity (I’d recommend a DAF here and a larger first-time grant for tax optimization), follow the Boglehead advice (don’t rush into spending the money or doing anything right away), but it’s okay to have a few vices (I enjoy watches and cars, for instance) without getting out of control.

btenny
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Re: Company IPO'd. What's Next?

Post by btenny » Fri May 03, 2019 12:12 pm

Congrats on your good fortune. I am sure you worked hard for this windfall. You should look into stock collars and then stock margin loans as a way to convert some of your options $$ into cash for investing and diversification and fun. Talk to your CFA and CPA about maybe doing this on 25-50% of your options.

https://www.fidelity.com/learning-cente ... ide/collar

https://www.citifirst.com/binary.aspx?i ... a9fd82fdfd

Good Luck going forward. Invest with care...

mchampse
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Re: Company IPO'd. What's Next?

Post by mchampse » Fri May 03, 2019 12:17 pm

ryman554 wrote:
Fri May 03, 2019 9:50 am
Valuethinker wrote:
Fri May 03, 2019 9:39 am

If OP's $4m is still in company stock, it is not $4m. It's nothing.

If so, getting the tax CPA on this ASAP is critical. And selling.

I have (sort of) been there, and seen it go down 90%. I was never worth £1m, except on paper.
Exactly.

The OP has got to get out of the single stock as soon as possible. That may not be for six months or more, depending on restrictions on selling.

It's going to be a big tax hit no matter what, really the only question I can see is if the OP wants to wait the one year to get their ISO qualified, assuming no/minimal options have yet been exercised, and pay only capital gains + 11% (state) + NIIT stuff, or if the OP just sells and pays 39% + 11% + NIIT.

For those that have been through it, am I missing something?

Do you take $2M guaranteed or roll the dice, try for $3M and end up with $1M (or 5+)? I think I know my answer.
IIRC, that all held for stock options, but I believe the tax treatment of RSUs are different. Whether or not, I would sell and take the gains even if you have to pay more tax. Only thing worse than paying tax is not having to pay it.

mchampse
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Re: Company IPO'd. What's Next?

Post by mchampse » Fri May 03, 2019 12:24 pm

btenny wrote:
Fri May 03, 2019 12:12 pm
Congrats on your good fortune. I am sure you worked hard for this windfall. You should look into stock collars and then stock margin loans as a way to convert some of your options $$ into cash for investing and diversification and fun. Talk to your CFA and CPA about maybe doing this on 25-50% of your options.

https://www.fidelity.com/learning-cente ... ide/collar

https://www.citifirst.com/binary.aspx?i ... a9fd82fdfd

Good Luck going forward. Invest with care...
From what I understand, some of the big investment houses are essentially willing to let you short sell shares in your company and then cover the short after the lockup period ends.

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Stinky
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Re: Company IPO'd. What's Next?

Post by Stinky » Fri May 03, 2019 12:24 pm

TechGuy89 wrote:
Fri May 03, 2019 1:30 am

Thanks! I am in the process of working with a fee-per-hour CPA to create some projects on how to be tax efficient with my stock options in the hope to sell my equity and diversify. He's expensive, at about $250-300/hour (averaged with his team), but I think it could be worth it.
Getting advice like this on taxes and structuring is one of the best things you can do. Along with following advice on investing and other things from this Board.

If you spend even 20 hours with this advisor, that would be about $5,000. And that’s a one time cost. Compare that to the $40,000 cost of the advisors you’re been hearing about at a 1% fee. That’s $40,000 per year, every year.
It's a GREAT day to be alive - Travis Tritt

btenny
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Re: Company IPO'd. What's Next?

Post by btenny » Fri May 03, 2019 12:58 pm

A collar and loan against 50% of his shares is better than a sell for the OP. This approach uses leverage to reduce his risk. He can set a sell price bottom (say 15% below the IPO price) and sell price top (say 100% increase) for the collar to give him security on a stock price drop and some participation in the up side. And he still keeps his shares of the company. Then he borrows 50% to 80% of this stock value from the bank at the IPO price and invests this $$ in a Vanguard mutual fund portfolio and some for his kids 529s and a nice vacation. He then adjusts the collar prices and loan terms every six months or so depending on the stock price and his $$ needs. Or he can just sell some of this stock as his needs change in the future.

Plus the stock loan interest and collar costs are tax deductible. And since he did not sell his stock he has no gains to report. And if he wants to he never has to sell any of his stock. He can keep doing this forever.

Good Luck.

btenny
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Re: Company IPO'd. What's Next?

Post by btenny » Fri May 03, 2019 1:00 pm

A collar and loan against 50% of his shares is better than a sell for the OP. This approach uses leverage to reduce his risk. He can set a sell price bottom (say 15% below the IPO price) and sell price top (say 100% increase) for the collar to give him security on a stock price drop and some participation in the up side. And he still keeps his shares of the company. Then he borrows 50% to 80% of this stock value from the bank at the IPO price and invests this $$ in a Vanguard mutual fund portfolio and some for his kids 529s and a nice vacation. He then adjusts the collar prices and loan terms every six months or so depending on the stock price and his $$ needs. Or he can just sell some of this stock as his needs change in the future.

Plus the stock loan interest and collar costs are tax deductible. And since he did not sell his stock he has no gains to report. And if he wants to he never has to sell any of his stock. He can keep doing this forever.

Good Luck.

barnaclebob
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Re: Company IPO'd. What's Next?

Post by barnaclebob » Fri May 03, 2019 1:07 pm

mchampse wrote:
Fri May 03, 2019 12:24 pm
btenny wrote:
Fri May 03, 2019 12:12 pm
Congrats on your good fortune. I am sure you worked hard for this windfall. You should look into stock collars and then stock margin loans as a way to convert some of your options $$ into cash for investing and diversification and fun. Talk to your CFA and CPA about maybe doing this on 25-50% of your options.

https://www.fidelity.com/learning-cente ... ide/collar

https://www.citifirst.com/binary.aspx?i ... a9fd82fdfd

Good Luck going forward. Invest with care...
From what I understand, some of the big investment houses are essentially willing to let you short sell shares in your company and then cover the short after the lockup period ends.
That sounds riskier than holding them. What if the value doubles in that time?

Topic Author
TechGuy89
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Re: Company IPO'd. What's Next?

Post by TechGuy89 » Fri May 03, 2019 1:15 pm

Thanks for all the replies! I'm still going through and processing them. One thing to note is that while I'm employed with the company, I can't take part in any options or derivative trading due to insider trading laws. I'm not sure if that's what the calls above are referring to :)

btenny
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Re: Company IPO'd. What's Next?

Post by btenny » Fri May 03, 2019 1:54 pm

Yes calls and puts are how a collar is built. They are options. I have never done it nor do I know how they are executed. I have just read about them. Some CEOs and similar top management people use them instead of selling their company stock and for tax reasons. So I know they are legal. I do not know how they handle the insider trade rules or lock up periods or trade limits and so forth. Maybe the options are done by the bank that gives you the margin loan and the put and call limits are in the bank terms. That is why you need to pay a good CFA and CPA/tax lawyer type to teach you some of these tricks.

The point is to keep your stock and borrow money as margin against that stock. Yes it is more complex and more risky but should give you higher returns and lower taxes. It is your call.

Good Luck.

mchampse
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Re: Company IPO'd. What's Next?

Post by mchampse » Fri May 03, 2019 2:32 pm

barnaclebob wrote:
Fri May 03, 2019 1:07 pm
mchampse wrote:
Fri May 03, 2019 12:24 pm
btenny wrote:
Fri May 03, 2019 12:12 pm
Congrats on your good fortune. I am sure you worked hard for this windfall. You should look into stock collars and then stock margin loans as a way to convert some of your options $$ into cash for investing and diversification and fun. Talk to your CFA and CPA about maybe doing this on 25-50% of your options.

https://www.fidelity.com/learning-cente ... ide/collar

https://www.citifirst.com/binary.aspx?i ... a9fd82fdfd

Good Luck going forward. Invest with care...
From what I understand, some of the big investment houses are essentially willing to let you short sell shares in your company and then cover the short after the lockup period ends.
That sounds riskier than holding them. What if the value doubles in that time?
The employees in question have stock that they can’t sell for 6 months. At the end of the 6 months, you would take that stock and cover the short irrespective of price.

Ie I have 100 shares of XYZ that I can’t sell for 6 months. I short sell 100 shares of XYZ now for $50 each and collect the cash and lock in $5000. In 6 months I can now use the stock that was in lockup to cover the short sale irrespective of the price at that time. I have $5000 whether the price at that time is 0 or $100.

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Stinky
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Re: Company IPO'd. What's Next?

Post by Stinky » Fri May 03, 2019 3:00 pm

TechGuy89 wrote:
Fri May 03, 2019 1:15 pm
Thanks for all the replies! I'm still going through and processing them. One thing to note is that while I'm employed with the company, I can't take part in any options or derivative trading due to insider trading laws. I'm not sure if that's what the calls above are referring to :)
That’s not at all surprising. Very common provision.
It's a GREAT day to be alive - Travis Tritt

staythecourse
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Re: Company IPO'd. What's Next?

Post by staythecourse » Fri May 03, 2019 3:10 pm

In the immortal words of the late Harry Browne... Put as few as people between your money and you.

Learn to invest in a three fund. Will take a whole 1-2 hours. That's it. Can't get an easier.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Thegame14
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Re: Company IPO'd. What's Next?

Post by Thegame14 » Fri May 03, 2019 3:16 pm

TechGuy89 wrote:
Fri May 03, 2019 12:37 am
Hi Bogleheads. The company I work at just IPO'd and I'll be receiving a large windfall from it. I'm 31, married, no kids, and live in a high COL city. We're renting for at least the next three years because we'll be moving then. My spouse and I make ~$300k/year. My equity is worth about $4M. I've been chatting with some private wealth management groups at some of the typical banks (ME, MS, GS, etc.) that charge ~0.7-1%/year in fees. I've taken the Boggleheads approach for 3 funds for my retirement accounts for years, but I thought I'd check to see what makes sense for this large windfall. I have to imagine these banks do make people money despite their fees, otherwise, why would people use them? I may be naive though. I've also been looking at the robo-management apps. Curious to hear what people recommend!
If it was me, I stick it into a MM account making 2.5% interest, which is a basically free $100,000 per year, after paying off any debts, and then when you move use that money to buy a house for a reasonable sum, and you can basically retire or do whatever you want at that point.

FIREmeup
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Re: Company IPO'd. What's Next?

Post by FIREmeup » Fri May 03, 2019 3:35 pm

Congrats!

I'd have to assume you a reasonably smart guy. No reason to go with a AUM fee advisor because with the help of the people here, you can do it yourself. That fee is the same thing as writing a $3k a month check to your advisor who will happily be your best friend for that amount.

Being you are so young, you will likely see your portfolio double, unless you decide to retire now, and that fee will be $6k a month in 12 years or so. Ouch.

Sounds like you are doing the right thing with a fixed fee CPA. Read this board a lot and realize you can keep it simple. With the amount of money you are starting off with at your young age, your finances are something that should never keep you awake at night.

Congrats again!

kxl19
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Re: Company IPO'd. What's Next?

Post by kxl19 » Sat May 04, 2019 9:33 am

TechGuy89 wrote:
Fri May 03, 2019 12:37 am
Hi Bogleheads. The company I work at just IPO'd and I'll be receiving a large windfall from it. I'm 31, married, no kids, and live in a high COL city. We're renting for at least the next three years because we'll be moving then. My spouse and I make ~$300k/year. My equity is worth about $4M. I've been chatting with some private wealth management groups at some of the typical banks (ME, MS, GS, etc.) that charge ~0.7-1%/year in fees. I've taken the Boggleheads approach for 3 funds for my retirement accounts for years, but I thought I'd check to see what makes sense for this large windfall. I have to imagine these banks do make people money despite their fees, otherwise, why would people use them? I may be naive though. I've also been looking at the robo-management apps. Curious to hear what people recommend!
Congrats. If you're an early employee, exercised options & held stock > 5 years while your company never had more than $50m in assets after any fundraising round, you could be eligible for 0% LTCG. Look into the Section 1202 Qualified Small Business Stock exclusion, it's a huge tax break, esp for shares you've held before the IPO. I wish I knew more about this before selling my post-IPO stock.

One good post-IPO strategy is to gradually dollar cost average out of the stock every quarter. You're likely limited to a lockup and have small windows for trading every year due to blackout periods. That way you won't make stupid decisions if the price is too high / low. Since you've "won the game", take your windfalls and turn it into your bond position, there's no need to take much more risk since you've won.

desiderium
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Re: Company IPO'd. What's Next?

Post by desiderium » Sat May 04, 2019 8:35 pm

You do need some good financial advice, personalized to your situation
You have identified and are addressing the tax questions.
You now have some estate issues, so this would be a good time to visit an attorney specializing in estates and trusts. Someone reliable and well known in your area.
I would look into a financial planner that will develop a comprehensive financial plan that takes into account your personal plans. It is easy to find someone that will do this and end with a pitch to manage your money. Take the time to find someone who does this on a fee only basis. When you have a better grasp on your goals/plans, getting investment advice here will be easier.
All of these things connect to one another, so doing them all while the consultants are actively engaged is appropriate.

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celia
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Re: Company IPO'd. What's Next?

Post by celia » Sat May 04, 2019 9:25 pm

"What's Next?" you ask?

The stock price will go up and down, based on the company having profits (or not), meeting their expectations (or not), investor psychology, and how the market does in general. Do you want to leave your "wealth" subject to these? It is particularly risky to own stock in the company you work for since if the company needs to go through hard times (eg.,the economy in general, regulatory changes, lawsuits, poor management, product/service becomes unneeded,etc.), not only would your job be in jeopardy, but also your wealth, at the SAME TIME. Therefore, it is recommended not to have more than 5-10% of your wealth in the stock of the company you work for. This is true for every company.
TechGuy89 wrote:
Fri May 03, 2019 12:37 am
I have to imagine these banks do make people money despite their fees, otherwise, why would people use them?
People use "these banks" because they are the ones who approached the employees (once they heard your company was IPO-ing, thus making the employees targets). If the banks want to make money, they need to connect with those who have the money. They are not doing it for YOUR good, but for THEIRS.

DonIce wrote:
Fri May 03, 2019 12:47 am
1) Many people are not confident of their ability to manage their own investments or are afraid to do so . . .

All academic evidence points to (1) being strictly false.
What source do you have for this? I agree that "most people" are not confident enough to do it themselves. "Most people" are not Bogleheads either.

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TechGuy89
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Re: Company IPO'd. What's Next?

Post by TechGuy89 » Sat May 04, 2019 10:19 pm

desiderium wrote:
Sat May 04, 2019 8:35 pm
You now have some estate issues, so this would be a good time to visit an attorney specializing in estates and trusts. Someone reliable and well known in your area.
I've spoken to a couple of estate attorneys who said the only benefits of doing this (setting up trusts, etc.) is for probate laws, and the state I'm in is pretty good for probate so it's not as necessary as say, California. Perhaps there are other things I'm missing though.

mhalley
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Re: Company IPO'd. What's Next?

Post by mhalley » Sat May 04, 2019 11:35 pm

The boglehead approach works the same if you have $4000, $40000, or $4000000. You might need a good cpa, and if you have a lot of money in taxable use muni funds instead of total bond market.

EddyB
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Re: Company IPO'd. What's Next?

Post by EddyB » Sat May 04, 2019 11:41 pm

btenny wrote:
Fri May 03, 2019 1:54 pm
Yes calls and puts are how a collar is built. They are options. I have never done it nor do I know how they are executed. I have just read about them. Some CEOs and similar top management people use them instead of selling their company stock and for tax reasons. So I know they are legal. I do not know how they handle the insider trade rules or lock up periods or trade limits and so forth. Maybe the options are done by the bank that gives you the margin loan and the put and call limits are in the bank terms. That is why you need to pay a good CFA and CPA/tax lawyer type to teach you some of these tricks.

The point is to keep your stock and borrow money as margin against that stock. Yes it is more complex and more risky but should give you higher returns and lower taxes. It is your call.

Good Luck.
For a variety of reasons it’s become increasingly common for insider trading policies to prohibit shorting and hedging. The odds are high that a new public company of any significant size would have such a policy.

desiderium
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Re: Company IPO'd. What's Next?

Post by desiderium » Sun May 05, 2019 10:06 am

TechGuy89 wrote:
Sat May 04, 2019 10:19 pm
desiderium wrote:
Sat May 04, 2019 8:35 pm
You now have some estate issues, so this would be a good time to visit an attorney specializing in estates and trusts. Someone reliable and well known in your area.
I've spoken to a couple of estate attorneys who said the only benefits of doing this (setting up trusts, etc.) is for probate laws, and the state I'm in is pretty good for probate so it's not as necessary as say, California. Perhaps there are other things I'm missing though.
Yes, trusts are not necessary just by a certain level of wealth, varies by state and state-level estate tax laws. Do you have a will? If not (or if will is old) I would get a consultation with an attorney and execute a will. Find someone your age. The relationship can be extremely valuable. I recently updated my will (v.3 over 15 years or so). During that time my attorney has helped me with a number of minor issues and answered legal questions. Most by email, very rapid turnaround and rarely costs much.

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