RSUs [how long to hold]

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thethinkingjar
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RSUs [how long to hold]

Post by thethinkingjar »

I am currently vesting into RSUs. What is the Boglehead philosophy on whether to hold or sell? Is it best to hold for a year to get capital gains rates or sell once I vest in order to take the money and run? How should I be thinking about this?
RJC
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Re: RSUs [how long to hold]

Post by RJC »

thethinkingjar wrote: Mon May 18, 2020 12:26 pm I am currently vesting into RSUs. What is the Boglehead philosophy on whether to hold or sell? Is it best to hold for a year to get capital gains rates or sell once I vest in order to take the money and run? How should I be thinking about this?
We sold ours right away every time and invested in the total market. If someone would give you the same amount in cash, would you go ahead and purchase into your company?
knowledge
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Re: RSUs [how long to hold]

Post by knowledge »

Taxation of RSUs will be as income when the shares are delivered to you, which is when they vest. There's no way that I"m aware of to turn that vesting amount into long term capital gains.

Given that, you'll see that a RSU vesting is exactly the same as getting a cash bonus from the company and buying company shares. So, if you were given a cash bonus in the company and forced to buy shares with it, what would you do after that?
BlackcatCA
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Re: RSUs [how long to hold]

Post by BlackcatCA »

Let me add a couple of variations to this question:

1) Let’s say immediately after the RSV grant the share price takes a dive. Is the recommendation to wait until the price recovers then sell, or sell at a loss to buy VTI (or other broad index)?

2) Let’s say the RSV gives out dividend at a good percentage. Is the recommendation to wait until the next dividend payout, or sell immediately?
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Re: RSUs [how long to hold]

Post by Jack FFR1846 »

My RSUs released this morning at market open. To be sure they sold ASAP, I put in a "sell all" last night. They're gone. Now, just have to wait until settlement to do something with the cash.
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marcopolo
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Re: RSUs [how long to hold]

Post by marcopolo »

Jack FFR1846 wrote: Mon May 18, 2020 1:25 pm My RSUs released this morning at market open. To be sure they sold ASAP, I put in a "sell all" last night. They're gone. Now, just have to wait until settlement to do something with the cash.
Do you really have to wait until the same of RSU settles?
Shouldn't what you buy have a settlement time as well, meaning if you bought right away, the sale and the buy woukd both settle in a couple of days?

That's the way I have always done it.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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rob
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Re: RSUs [how long to hold]

Post by rob »

Let me rephrase your question... Would you take cash today and buy your employer's stock? If no then cash them asap. If yes then how long would you hold them? Same answers all around....

Options are a different animal but RSU's are fairly simple IMO.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
shess
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Re: RSUs [how long to hold]

Post by shess »

BlackcatCA wrote: Mon May 18, 2020 1:20 pm Let me add a couple of variations to this question:

1) Let’s say immediately after the RSV grant the share price takes a dive. Is the recommendation to wait until the price recovers then sell, or sell at a loss to buy VTI (or other broad index)?

2) Let’s say the RSV gives out dividend at a good percentage. Is the recommendation to wait until the next dividend payout, or sell immediately?
In most cases, you should treat it identically to receiving cash on the day of vest, and then deciding whether to purchase company stock with that cash. The fact that the value is delivered as company stock rather than cash is an accident of the way regulations are structured, not a holding recommendation.

Also, keep in mind that if you can make a good argument for holding company stock, holding it in the arbitrary amount that your restricted stock grants vest is kind of weird. Why not just buy the shares you want and auto-sell the grants as they vest?
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Re: RSUs [how long to hold]

Post by MathIsMyWayr »

RJC wrote: Mon May 18, 2020 1:03 pm
thethinkingjar wrote: Mon May 18, 2020 12:26 pm I am currently vesting into RSUs. What is the Boglehead philosophy on whether to hold or sell? Is it best to hold for a year to get capital gains rates or sell once I vest in order to take the money and run? How should I be thinking about this?
We sold ours right away every time and invested in the total market. If someone would give you the same amount in cash, would you go ahead and purchase into your company?
+1. This is the best answer. You don't need any more. I wish you stopped reading right there. If yes, keep it. If no, sell right away if allowed.
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Re: RSUs [how long to hold]

Post by PVW »

thethinkingjar wrote: Mon May 18, 2020 12:26 pm I am currently vesting into RSUs. What is the Boglehead philosophy on whether to hold or sell? Is it best to hold for a year to get capital gains rates or sell once I vest in order to take the money and run? How should I be thinking about this?
When your RSUs vest, they are taxed as regular income. Often some number of the RSUs wil be sold to cover the withholding, but in any case they'll be added to your other income on your tax return. Your capital gains basis is the value at vesting.

Since there is no tax or other penalty in turning them into cash, you need to decide if you would rather have cash or stock. Put another way - if you had the cash, would you use it to buy your company's stock?
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Re: RSUs [how long to hold]

Post by Jack FFR1846 »

marcopolo wrote: Mon May 18, 2020 1:28 pm
Jack FFR1846 wrote: Mon May 18, 2020 1:25 pm My RSUs released this morning at market open. To be sure they sold ASAP, I put in a "sell all" last night. They're gone. Now, just have to wait until settlement to do something with the cash.
Do you really have to wait until the same of RSU settles?
Shouldn't what you buy have a settlement time as well, meaning if you bought right away, the sale and the buy woukd both settle in a couple of days?

That's the way I have always done it.
After the sale, I take the cash. If I wanted to buy an ETF, it's at another broker (Schwab). I believe if I wanted to buy something else where I am (eTrade), I probably could before settlement. But I don't want to do that, I want the cash.
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Re: RSUs [how long to hold]

Post by TomatoTomahto »

Jack FFR1846 wrote: Mon May 18, 2020 1:25 pm My RSUs released this morning at market open. To be sure they sold ASAP, I put in a "sell all" last night. They're gone. Now, just have to wait until settlement to do something with the cash.
Same here, but we had to wait until Compliance cleared the sale (immediate unless there’s some blackout period). It’s a complicated way to get a “lumpy salary,” but we will take it. :D
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: RSUs [how long to hold]

Post by RetiredAL »

As a result the Tech Crash in the early 2000's, many of those holding exercised RSU's found themselves very far underwater, to the extent that when they sold their sale price did not even cover the taxes due. Add to that there were job losses. I was not personally involved, but know people that were. It was a lesson impressed on me that they should be sold ASAP. It's a pretty bitter pill to lose you job, your savings, and your retirement, all at the same time. Sell and diversify.

This is what I taught my son, who does get RSU's, along with his wife.

If you don't sell all quickly, at least sell enough ASAP at least enough to cover the taxes. Then if the rest of the RSU's goes to zero, Oh Well!, it was a gift.
annu
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Re: RSUs [how long to hold]

Post by annu »

So of you get rsu @ 100 but price goes down to 50 after you get them you still already had to pay tax for each stock at 100?

If yes, then can you use that to do a tax loss harvest?
milktoast
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Re: RSUs [how long to hold]

Post by milktoast »

marcopolo wrote: Mon May 18, 2020 1:28 pm Do you really have to wait until the same of RSU settles?
All of my RSUs sell from stock plan account and settle in brokerage account. I can't buy in stock plan account and can't use the funds in brokerage account until they settle.

Maybe different brokerages work differently.
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Re: RSUs [how long to hold]

Post by dcabler »

I sell the moment they hit my account and use the proceeds to purchase my favorite etf or mutual fund in my taxable account. This is free money, even more so with the discount. I don't own individual stocks for a reason - too volatile. And I certainly wouldn't further increase my risk by owning stock in the same company from whom I receive a paycheck.
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Re: RSUs [how long to hold]

Post by dcabler »

RetiredAL wrote: Mon May 18, 2020 3:07 pm As a result the Tech Crash in the early 2000's, many of those holding exercised RSU's found themselves very far underwater, to the extent that when they sold their sale price did not even cover the taxes due. Add to that there were job losses. I was not personally involved, but know people that were. It was a lesson impressed on me that they should be sold ASAP. It's a pretty bitter pill to lose you job, your savings, and your retirement, all at the same time. Sell and diversify.

This is what I taught my son, who does get RSU's, along with his wife.

If you don't sell all quickly, at least sell enough ASAP at least enough to cover the taxes. Then if the rest of the RSU's goes to zero, Oh Well!, it was a gift.
You sure you're not talking about stock options instead of RSU's?
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Re: RSUs [how long to hold]

Post by BlackcatCA »

shess wrote: Mon May 18, 2020 1:34 pm
BlackcatCA wrote: Mon May 18, 2020 1:20 pm Let me add a couple of variations to this question:

1) Let’s say immediately after the RSV grant the share price takes a dive. Is the recommendation to wait until the price recovers then sell, or sell at a loss to buy VTI (or other broad index)?

2) Let’s say the RSV gives out dividend at a good percentage. Is the recommendation to wait until the next dividend payout, or sell immediately?
In most cases, you should treat it identically to receiving cash on the day of vest, and then deciding whether to purchase company stock with that cash. The fact that the value is delivered as company stock rather than cash is an accident of the way regulations are structured, not a holding recommendation.

Also, keep in mind that if you can make a good argument for holding company stock, holding it in the arbitrary amount that your restricted stock grants vest is kind of weird. Why not just buy the shares you want and auto-sell the grants as they vest?
Because I did not auto-sell at the time of grant, and am trying to figure out when is the optimal time to sell.
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Re: RSUs [how long to hold]

Post by catlady »

annu wrote: Mon May 18, 2020 5:21 pm So of you get rsu @ 100 but price goes down to 50 after you get them you still already had to pay tax for each stock at 100?

If yes, then can you use that to do a tax loss harvest?
If you are referring to $100 at the time they vest, yes. You would pay tax on the $100 price and if you sold at $50 you can claim $50 capital loss per share. If your company uses a dollar amount at grant time to convert to a number of shares, the price they converted at is irrelevant for any income or tax purposes.
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Re: RSUs [how long to hold]

Post by annu »

catlady wrote: Mon May 18, 2020 9:39 pm
annu wrote: Mon May 18, 2020 5:21 pm So of you get rsu @ 100 but price goes down to 50 after you get them you still already had to pay tax for each stock at 100?

If yes, then can you use that to do a tax loss harvest?
If you are referring to $100 at the time they vest, yes. You would pay tax on the $100 price and if you sold at $50 you can claim $50 capital loss per share. If your company uses a dollar amount at grant time to convert to a number of shares, the price they converted at is irrelevant for any income or tax purposes.
Thanks, as someone who never paid attention to this, is this something your tax person will do on their own or you have to ask? I am sorry I never thought of rsu correctly. So wondering how to check on my returns for last year or two and confirm it is done right.
ModifiedDuration
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Re: RSUs [how long to hold]

Post by ModifiedDuration »

dcabler wrote: Mon May 18, 2020 6:32 pm
RetiredAL wrote: Mon May 18, 2020 3:07 pm As a result the Tech Crash in the early 2000's, many of those holding exercised RSU's found themselves very far underwater, to the extent that when they sold their sale price did not even cover the taxes due. Add to that there were job losses. I was not personally involved, but know people that were. It was a lesson impressed on me that they should be sold ASAP. It's a pretty bitter pill to lose you job, your savings, and your retirement, all at the same time. Sell and diversify.

This is what I taught my son, who does get RSU's, along with his wife.

If you don't sell all quickly, at least sell enough ASAP at least enough to cover the taxes. Then if the rest of the RSU's goes to zero, Oh Well!, it was a gift.
You sure you're not talking about stock options instead of RSU's?
Yes, he is talking about stock options. People during the Internet Bubble exercised options, held the stock, then had the stock price plummet, and ended up owing a big tax bill on the gain from the original exercise.

Not RSUs, where the tax on the stock received is withheld at vesting date.
Last edited by ModifiedDuration on Mon May 18, 2020 10:15 pm, edited 1 time in total.
catlady
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Re: RSUs [how long to hold]

Post by catlady »

annu wrote: Mon May 18, 2020 10:03 pm
catlady wrote: Mon May 18, 2020 9:39 pm
annu wrote: Mon May 18, 2020 5:21 pm So of you get rsu @ 100 but price goes down to 50 after you get them you still already had to pay tax for each stock at 100?

If yes, then can you use that to do a tax loss harvest?
If you are referring to $100 at the time they vest, yes. You would pay tax on the $100 price and if you sold at $50 you can claim $50 capital loss per share. If your company uses a dollar amount at grant time to convert to a number of shares, the price they converted at is irrelevant for any income or tax purposes.
Thanks, as someone who never paid attention to this, is this something your tax person will do on their own or you have to ask? I am sorry I never thought of rsu correctly. So wondering how to check on my returns for last year or two and confirm it is done right.
If you gave your tax preparer the 1099 from your brokerage and didn’t fill out anything to indicate an adjusted basis, they would have accounted for it properly.
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Re: RSUs [how long to hold]

Post by mrspock »

thethinkingjar wrote: Mon May 18, 2020 12:26 pm I am currently vesting into RSUs. What is the Boglehead philosophy on whether to hold or sell? Is it best to hold for a year to get capital gains rates or sell once I vest in order to take the money and run? How should I be thinking about this?
On the day your RSUs vest there are 0 capital gains, this is irrelevant. The taxes typically owed on RSUs are income taxes based on the value of the RSUs on the day they vest, go look at your prior year's 1040 and figure out what your marginal tax rate is, and then pay the difference between the amount your employer already remitted to the IRS (typically via "sell to cover") and the amount you should owe per your marginal tax rate. You can hold it 5 days or 5 years, the amount of income taxes you will owe is the same, Uncle Sam wants his money. For more details (including an example) check out my post here.

What you do after that is as you would any stock investment, you can go buy McDonald's, an S&P 500 index fund, your favorite triple leveraged oil ETF or your own company's stock -- the capital gains taxes are the same.

What is general Boglehead advice on this? Sell every dime of your company stock, pay up the taxes per your marginal rate, and go buy yourself an broad based index fund (VTI, VOO etc). Hold this fund per the AA defined in your IPS until you drop dead sometime in your 90s. Give your heirs the gift of a cost basis step-up, i.e. 0 capital gains taxes, just make sure you stipulate in your will they name the Yacht, cabin or ranch after you.
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Re: RSUs [how long to hold]

Post by anoop »

thethinkingjar wrote: Mon May 18, 2020 12:26 pm I am currently vesting into RSUs. What is the Boglehead philosophy on whether to hold or sell? Is it best to hold for a year to get capital gains rates or sell once I vest in order to take the money and run? How should I be thinking about this?
The entire value of the RSUs that vest is taxed as ordinary income at the price on the date of vesting regardless whether they are sold or not. So there is no benefit to holding them unless the stock appreciates, but then it could also go down.

The general rule is to sell for diversification. Keep it only if you think you would buy it on the open market.
shess
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Re: RSUs [how long to hold]

Post by shess »

ModifiedDuration wrote: Mon May 18, 2020 10:09 pm
dcabler wrote: Mon May 18, 2020 6:32 pm
RetiredAL wrote: Mon May 18, 2020 3:07 pm As a result the Tech Crash in the early 2000's, many of those holding exercised RSU's found themselves very far underwater, to the extent that when they sold their sale price did not even cover the taxes due. Add to that there were job losses. I was not personally involved, but know people that were. It was a lesson impressed on me that they should be sold ASAP. It's a pretty bitter pill to lose you job, your savings, and your retirement, all at the same time. Sell and diversify.

This is what I taught my son, who does get RSU's, along with his wife.

If you don't sell all quickly, at least sell enough ASAP at least enough to cover the taxes. Then if the rest of the RSU's goes to zero, Oh Well!, it was a gift.
You sure you're not talking about stock options instead of RSU's?
Yes, he is talking about stock options. People during the Internet Bubble exercised options, held the stock, then had the stock price plummet, and ended up owing a big tax bill on the gain from the original exercise.
From what I recall, these cases were mostly where people early-exercised ISO (Incentive Stock Options) which were in the money, generally a bit before IPO. There is a way with ISOs where you can early-exercise before vesting to get your LTCG clock ticking, which gives you tax savings. BUT, if the stock price has risen since your grant, you owe AMT. So people would try to early-exercise, be in the safe harbor for estimated taxes, then hopefully pay off the AMT from their huge IPO gains.

Unfortunately, if the IPO cratered, you still owed AMT. You could reclaim that AMT loss again AMT gains ... which few people have. So you could claim that AMT loss against AMT income at $3k per year, which didn't usually do a whole heckuva lot of good.

RSUs are entirely different, it's usually all regular income at vesting with a withholding requirement, so you can't hang yourself out this way. Non-qualified options don't have the same early-exercise provisions of ISOs ability, it's all regular income tax at exercise, again usually with a withholding requirement.
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Re: RSUs [how long to hold]

Post by sf_tech_saver »

thethinkingjar wrote: Mon May 18, 2020 12:26 pm I am currently vesting into RSUs. What is the Boglehead philosophy on whether to hold or sell? Is it best to hold for a year to get capital gains rates or sell once I vest in order to take the money and run? How should I be thinking about this?
RSUs are simple: sell and ETF ASAP.

Options: it's complicated.
VTI is a modern marvel
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Re: RSUs [how long to hold]

Post by milktoast »

shess wrote: Mon May 18, 2020 11:46 pm From what I recall, these cases were mostly where people early-exercised ISO (Incentive Stock Options) which were in the money, generally a bit before IPO.

[...]

Unfortunately, if the IPO cratered, you still owed AMT. You could reclaim that AMT loss again AMT gains ... which few people have. So you could claim that AMT loss against AMT income at $3k per year, which didn't usually do a whole heckuva lot of good.
Yup. Kept the house. :sharebeer And twelve years later my AMT credit was finally used up.
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Re: RSUs [how long to hold]

Post by anoop »

https://www.chicagotribune.com/sns-tech ... story.html

There was also a Rambus engineer that shoe himself because of the huge AMT tax bill that he was stuck with. He had exercised his ISO shares and quit his job thinking he made enough money only to see the stock get obliterated.
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Re: RSUs [how long to hold]

Post by RetiredAL »

shess wrote: Mon May 18, 2020 11:46 pm
ModifiedDuration wrote: Mon May 18, 2020 10:09 pm
dcabler wrote: Mon May 18, 2020 6:32 pm
RetiredAL wrote: Mon May 18, 2020 3:07 pm As a result the Tech Crash in the early 2000's, many of those holding exercised RSU's found themselves very far underwater, to the extent that when they sold their sale price did not even cover the taxes due. Add to that there were job losses. I was not personally involved, but know people that were. It was a lesson impressed on me that they should be sold ASAP. It's a pretty bitter pill to lose you job, your savings, and your retirement, all at the same time. Sell and diversify.

This is what I taught my son, who does get RSU's, along with his wife.

If you don't sell all quickly, at least sell enough ASAP at least enough to cover the taxes. Then if the rest of the RSU's goes to zero, Oh Well!, it was a gift.
You sure you're not talking about stock options instead of RSU's?
Yes, he is talking about stock options. People during the Internet Bubble exercised options, held the stock, then had the stock price plummet, and ended up owing a big tax bill on the gain from the original exercise.
From what I recall, these cases were mostly where people early-exercised ISO (Incentive Stock Options) which were in the money, generally a bit before IPO. There is a way with ISOs where you can early-exercise before vesting to get your LTCG clock ticking, which gives you tax savings. BUT, if the stock price has risen since your grant, you owe AMT. So people would try to early-exercise, be in the safe harbor for estimated taxes, then hopefully pay off the AMT from their huge IPO gains.

Unfortunately, if the IPO cratered, you still owed AMT. You could reclaim that AMT loss again AMT gains ... which few people have. So you could claim that AMT loss against AMT income at $3k per year, which didn't usually do a whole heckuva lot of good.

RSUs are entirely different, it's usually all regular income at vesting with a withholding requirement, so you can't hang yourself out this way. Non-qualified options don't have the same early-exercise provisions of ISOs ability, it's all regular income tax at exercise, again usually with a withholding requirement.
To all following this sub thread -- It was 20 years ago, and I was not directly involved, but my recollection was restricted stocked, not ISO. I didn't run in the founders crowd. Nor did the person I directly knew that this happened to. The normal workers usually got restricted stock of some flavor. The High Exec's get the ISO's. As I remember, it had to do with some kind of tax election, and I believe I may have found it -- Section 83(b) Election. Per https://www.investopedia.com/articles/t ... ck-tax.asp a Section 83(b) Election is allowable for various restricted stock plans including RSU's, if the actual plan allows for it. The rules today could well be different today compared to 20 years ago. However when my son was first into his RSU's about 10 years ago, his plan documentation, which he and I went over before he acted, discussed something about an Election with a warning about tax consequences of the if certain events were to happened. Although I know both my son and his wife have gotten RSU's at their current jobs, I know nothing of their plan details.
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Re: RSUs [how long to hold]

Post by Starfish »

RSUs are cash! There is no difference, it's like a bonus.
Holding them is like buying your employer stock. Generally not the best idea.
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Re: RSUs [how long to hold]

Post by Jack FFR1846 »

There is some confusion here. There are big differences.

Stock Options: You are given the right to BUY stock at a "strike price". In this case, if the market price is lower than the strike price, they are worthless. If the market price is higher, and the options are vested, you can then BUY the stock at the reduced price.

Restricted Stock Units: You are GIVEN actual stock. When it vests, you get the stock at no cost. It's considered income and you pay tax at ordinary income tax rates. Going forward, the stock (with tax paid) can gain or lose and you get to treat the gain or loss as taxable gain and pay the appropriate tax or loss and you can take the tax loss.
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TomatoTomahto
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Re: RSUs [how long to hold]

Post by TomatoTomahto »

Jack, OP has apparently left, but regarding
You are GIVEN actual stock.
I would rephrase that as “you are granted x shares, which is a contract to give you x shares according to a vesting schedule, as long as certain requirements are met (typically, not resigning from that employer).”

ETA: yesterday wasn’t a bad day to vest, was it?😁
Okay, I get it; I won't be political or controversial. The Earth is flat.
Jack FFR1846
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Re: RSUs [how long to hold]

Post by Jack FFR1846 »

Yes, I agree. The nomenclature eTrade uses is that the stock is "released". I sold at market open yesterday, but it still was a good day.
Bogle: Smart Beta is stupid
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