selling RSU immediately

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RVD
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selling RSU immediately

Post by RVD » Mon Oct 20, 2014 6:21 pm

Should I sell RSUs immediately whenever they vest?

I read through the archives and it looks like the question of whether to sell RSUs immediately when they vest or not is tied to the question of "would you choose to buy this stock anyway if you got a cash bonus instead of RSU?"

This makes sense since one way to think of RSU is essentially your company paying you a cash bonus but using that cash to buy stock for you. You now have the choice to just get cash again or keep the stock.

My only slight hesitation to this is that over the years I would meet people who work at high flying companies (think AAPL, GOOG, AMZN, TSLA, etc.) and would think to myself "wow, you've been working there for 15 years...the stock that you have must be great"

However, finding out that they probably just sold it all as it vested puts a bit of a damper on my thought of admiration.

In addition, when I worked at one of these companies, I sold off all of my stock that I owned before starting the job there because I figured "I have a ton of stock vesting over the next few years anyway"...and it was good but I lost out on a lot of profit because the company shot up after I started...

Is the recommendation to sell immediately when it vests the same for all companies or would you offer different advice if your friend worked at one of these types of strong tech companies? My logic tells me it's the same and they should always sell.

TheExMexican
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Re: selling RSU immediately

Post by TheExMexican » Mon Oct 20, 2014 10:54 pm

You are making a bet. Maybe it will pay off big, but maybe it won't. The problem is that if it doesn't, you may find yourself with RSUs that are worth less than the vesting price, and without a job.

It is tempting to think ''but my company is different, we can't ever do THAT bad!" In fact, this is exactly what I thought at my previous job, where for about 10 years, I had over 30% of my net worth in RSUs and ESPP stock. I was very lucky (but not lucky enough!) that the stock had enough ups and downs to allow me to make a nice profit over the years. Now that I understand the risk a little better, my vested RSUs sit in my brokerage account for about 1 business day before they get sold and diversified into something else.

Just think about this: do you think the guys working at Enron ever thought "hmmm...I'd better not put any more Enron stock in my 401k, this company is going down the drain!" (They probably did, but by that time it was too late to do anything!)

Good luck,

TheExMex

LongerPrimer
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Re: selling RSU immediately

Post by LongerPrimer » Tue Oct 21, 2014 12:09 am

My son has ISOs. After one year, vesting units were 3x but now 2x.
There is a book for this.
IMO, there is no right or wrong answer. You can play any " option " but nothing comes free nor without risk.
Experience tells me to watch Sales and Inventory levels. Hires and position openings. Employee attitudes. Stock movements. :annoyed

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rob
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Re: selling RSU immediately

Post by rob » Tue Oct 21, 2014 12:14 am

Would you buy the stock with cash? Vesting RSU is the same as getting a cash bonus and buying the stock...... could be a good or bad plan. Obviously, keeping a lot of your money in company stock is a bad idea - employees are often the last to see the signs.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

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TomatoTomahto
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Re: selling RSU immediately

Post by TomatoTomahto » Tue Oct 21, 2014 12:15 am

We always sell. Why strive for diversification and then double down on your employer? If they're doing well, you will do well even without loading up on more stock than you have to.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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RVD
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Re: selling RSU immediately

Post by RVD » Tue Oct 21, 2014 12:34 am

rob wrote:Would you buy the stock with cash? Vesting RSU is the same as getting a cash bonus and buying the stock...... could be a good or bad plan. Obviously, keeping a lot of your money in company stock is a bad idea - employees are often the last to see the signs.
I think I would but I'm rethinking this because maybe I shouldn't.

I do believe in my company but hey, I work here so maybe I'm just drinking the kool-aid right? I guess my question was whether there are any companies where it's worth keeping. e.g, if I worked for BRK.A, should I still sell? I guess it's irrelevant where you work and what the stock is.

We have a short timespan where we can select to automatically sell all vested RSU as soon as they vest and once that is set, it can't be changed for a year so I'm thinking about this a lot these days.

I don't own much of my company's stock (I bought a few shares many years ago and still have them but it's only a few shares) so one thought is to go ahead with keeping this allocation as it vests and starting next year, start selling automatically once I have enough. But I guess maybe it's best to not actually own any of the stock since I'll always have stock that will vest as well as my salary, bonus, etc.

RVD.

sliu
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Re: selling RSU immediately

Post by sliu » Tue Oct 21, 2014 2:34 am

If you own a total market fund, you already likely own some company stock via the mutual fund. By holding RSU, you are effectively tilting more towards your own company. Perhaps it helps to ask whether you can tolerate the risk of tilting to one company compared with tilting to a broader index (e.g. small value, international, REIT, etc.)

For an employee of a large cap S&P 500 company, perhaps tilting to their own company doesn't add significant risk, but a mid/small cap company (not even talking about an index here) tilt, the risk is significant. Since you are now more aware of the broader implications, it comes down to whether you are willing to stomach the results.

Longdog
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Re: selling RSU immediately

Post by Longdog » Tue Oct 21, 2014 5:29 am

Even if you sell the shares as soon as they vest, if the stock goes up then next year's vested shares will benefit from that increase, so you'd still have some exposure to your company.
Steve

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TomatoTomahto
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Re: selling RSU immediately

Post by TomatoTomahto » Tue Oct 21, 2014 5:56 am

SteveM wrote:Even if you sell the shares as soon as they vest, if the stock goes up then next year's vested shares will benefit from that increase, so you'd still have some exposure to your company.
Yes, I imagine that it's roughly the same at most companies, handcuffs being handcuffs :D At any given point in time, my wife has 3 years of un-vested company RSUs. That represents roughly 90% of a year's compensation in total (i.e., roughly half of each year's bonus, which is roughly 60% of annual compensation). More than enough for us, thanks.

And, when the stock tanks, as my wife's company's has, it means that next year you will get even more shares, which does not quite make up for the fact that for a couple of years, you watched your un-vested compensation become worth less and less every month. Boy, aren't we glad that we only have 3 years worth of that stinker stock :sharebeer
Okay, I get it; I won't be political or controversial. The Earth is flat.

madbrain
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Re: selling RSU immediately

Post by madbrain » Tue Oct 21, 2014 6:15 am

RVD wrote: My only slight hesitation to this is that over the years I would meet people who work at high flying companies (think AAPL, GOOG, AMZN, TSLA, etc.) and would think to myself "wow, you've been working there for 15 years...the stock that you have must be great"
And the flip side of that is, you can be assured that some people also lost big holding their employer stock way too long. I know many. Never mind holding on to RSU, but even just ESPP shares. The reality is that it's hard to predict how your own company stock will perform. It can be a good place to work, and also a really poor investment all at the same time.

If you look at AAPL, they nearly went bankrupt in the late 1990s. And they would have, if Microsoft didn't give them a loan while the feds were investigating them for anti-trust violations. And a lot of the big tech companies survived the dotcom, but have still seen their valuations shrink dramatically since.
Cisco or Microsoft may never be worth what it was once. And have you ever heard of the invincible AOL ? Where is Sun Microsystems nowadays ? Where would Yahoo be without a lucky bet on Alibaba ?

The reality is that even great and once seemingly invincible companies can lose marketshare and get displaced by newcomers.

So, you could do much worse than selling your RSUs immediately. If you like to play the lottery, then by all means hold some or all of your shares. But usually on Bogleheads, we don't recommend having too much of one's net worth tied in any individual stock, and company stock is no exception.

HawkeyeJD
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Re: selling RSU immediately

Post by HawkeyeJD » Tue Oct 21, 2014 7:58 am

madbrain wrote:
RVD wrote: My only slight hesitation to this is that over the years I would meet people who work at high flying companies (think AAPL, GOOG, AMZN, TSLA, etc.) and would think to myself "wow, you've been working there for 15 years...the stock that you have must be great"
And the flip side of that is, you can be assured that some people also lost big holding their employer stock way too long. I know many. Never mind holding on to RSU, but even just ESPP shares. The reality is that it's hard to predict how your own company stock will perform. It can be a good place to work, and also a really poor investment all at the same time.

If you look at AAPL, they nearly went bankrupt in the late 1990s. And they would have, if Microsoft didn't give them a loan while the feds were investigating them for anti-trust violations. And a lot of the big tech companies survived the dotcom, but have still seen their valuations shrink dramatically since.
Cisco or Microsoft may never be worth what it was once. And have you ever heard of the invincible AOL ? Where is Sun Microsystems nowadays ? Where would Yahoo be without a lucky bet on Alibaba ?

The reality is that even great and once seemingly invincible companies probably will lose marketshare and get displaced by newcomers.

So, you could do much worse than selling your RSUs immediately. If you like to play the lottery, then by all means hold some or all of your shares. But usually on Bogleheads, we don't recommend having too much of one's net worth tied in any individual stock, and company stock is no exception.

Modified the above to be consistent with history. Most companies do not persist through time. Most people can see ways in which most companies that currently exist could be run out of existence. What happens to Tesla if GM invents some new magic battery technology that makes their EVs twice as good? What if the opposite is true. You could spend all day doing this type of thought and if you can't, you are not being imaginative enough. Then think about AAPL, darn near went under a few years ago. Might happen again, you never know, they really have not been around all that long in the sense of a GE or Johnson and Johnson, and they are not terribly diversified if you think about it.


As to your question, the comparison is not cash vs RSU, it is whether you are confident the RSU will outperform the broad market enough to compensate you for the risk of being concentrated in one equity. Almost everyone on this board would agree that even if the stock out-performs, it is probably not enough to justify the risk you took.

If the above is not enough, imagine going home to your spouse and saying "well, we had $250k in the RSU account yesterday, but the SEC/FBI/DOJ/State Department of Whatever, just launched a major probe of our accounting and the company is going to likely have to restate 5 years of earnings. The restatement, associated litigation, and inevitable class action lawsuits just caused the share price to drop 40% today ad I don't think it will improve". That can't happen to the broader market (yes it can go down 40%, but not because of any one company). For me, this is the difference between saying to my wife that I personally screwed up taking on a lot of risk, vs The market screwing up and me being an innocent bystander. My wife understands when the market goes up and down and accepts it for what it is, but gets quite mad if she finds out I've spend a few hundred bucks gambling on a few individual stocks because that is what it is, gambling. So happy wife happy life!

For me, having the wife mad at me for a few months is probably worse than losing the money, but the combination of math (risk), history, and happy wife lead me to only one conclusion if I were in your situation...Sell the RSUs!

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RVD
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Re: selling RSU immediately

Post by RVD » Tue Oct 21, 2014 12:39 pm

HawkeyeJD wrote: For me, having the wife mad at me for a few months is probably worse than losing the money, but the combination of math (risk), history, and happy wife lead me to only one conclusion if I were in your situation...Sell the RSUs!
lol, point made. will sell.

RVD.

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Steadfast
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Re: selling RSU immediately

Post by Steadfast » Tue Oct 21, 2014 1:08 pm

Owning any significant portion of your assets in a single company is the opposite of diversification and increases risk substantially. The risk is magnified because if the stock takes a dive it may be because the business has also taken a dive, and now not only your portfolio but also your job may be in jeopardy at the same time. Sound like a good time? Take their paychecks, diversify out of their stock.
We don't see things as they are, we see things as we are.

bhsince87
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Re: selling RSU immediately

Post by bhsince87 » Tue Oct 21, 2014 1:22 pm

Been there, done that, and still carry the emotional baggage.... :(

I drank the co koolaid, and had a huge chunk of my 401k in company stock, and a lot of my outside investments too.

Then one day a scandal broke and it dropped about 70%. A month later, I lost my job. Double whammy. Triple maybe.

I learned the hard way: DIVERSIFY!

Now every bonus or stock grant I get, I cash out ASAP, and shoot the money immediately into a 60/40 mix of funds.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

dimdum
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Re: selling RSU immediately

Post by dimdum » Tue Oct 21, 2014 3:41 pm

Cash out immediately, if not whole then at least 50% of it.
Are you contributing to ESPP too ? Those are additional stocks you get every 6 months.

icefr
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Re: selling RSU immediately

Post by icefr » Tue Oct 21, 2014 3:48 pm

RVD wrote: My only slight hesitation to this is that over the years I would meet people who work at high flying companies (think AAPL, GOOG, AMZN, TSLA, etc.) and would think to myself "wow, you've been working there for 15 years...the stock that you have must be great"

However, finding out that they probably just sold it all as it vested puts a bit of a damper on my thought of admiration.

Is the recommendation to sell immediately when it vests the same for all companies or would you offer different advice if your friend worked at one of these types of strong tech companies? My logic tells me it's the same and they should always sell.
I would say it's the same, that you should always sell. You have a risk/gain factor anyways. For example, my employer's stock has done fairly well and I've still reaped benefits from that even though I sell them right away because some of my shares vested years after they were granted, so I still saw the appreciation in value from the time of the grant.

My employer does our 401(k) matching in company stock and I transfer it out to an index fund during a trading window once a year.

I see no reason to keep my employer's stock. Saving it into stock index funds is going to be a much less risky long-term return strategy than my employer's stock.

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Re: selling RSU immediately

Post by madbrain » Tue Oct 21, 2014 7:18 pm

RVD wrote:
HawkeyeJD wrote: For me, having the wife mad at me for a few months is probably worse than losing the money, but the combination of math (risk), history, and happy wife lead me to only one conclusion if I were in your situation...Sell the RSUs!
lol, point made. will sell.

RVD.
Well, that's one point of view :) I don't really discuss investments very much with my husband - he trusts me to do that and take the right amount of risk, so that wouldn't be a factor here.

I didn't mean to say you should always sell 100% RSU/ESPP immediately every time. If you have a large portfolio, it may be right to gamble and keep some depending on the situation and your appetite for risk. I work for a very large company and I don't see a large potential for it outperforming the rest of the market, so I keep my exposure to employer stock to 0% even with a 7 figure portfolio. If I worked for a startup with good potential, I might feel differently about holding some of its stock.

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Makaveli
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Re: selling RSU immediately

Post by Makaveli » Tue Oct 21, 2014 9:16 pm

Similar advice to other posters - sell your RSU's & diversify. If you want to own a piece of the rock and watch your companies elevator screen flash green with gains, then consider holding RSU's that add up to 5% of your total portfolio (will not have any significant impact if crashes). Now you can have your cake and eat it too. Sell 95% and diversify, hold 5% and feel like you own a piece.

FYI - my total portfolio currently has 7% allocated towards my companies stock. I used to be one who wanted to own a piece of the rock but now I realize that simplicity wins out. Come March I'll transfer into LTCP and sell that 7% position and buy more US Total Market.

DaftInvestor
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Re: selling RSU immediately

Post by DaftInvestor » Wed Oct 22, 2014 6:51 am

OP- you mention a few high flying companies but are missing all the once high flying companies that are now down. I know far more folks with stories "if I only sold my Lucent RSUs when it was at 120 - everyone thought the stock would split again and re-double...".
RSUs are a great retention strategy for companies but if you had that many dollars to invest would you put it all into one stock (likely not since you are on this site)? Sell to diversify is the best strategy especially if you have additional RSUs that will vest ....

kDictavissent
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Re: selling RSU immediately

Post by kDictavissent » Wed Oct 22, 2014 7:01 am

HawkeyeJD wrote:If the above is not enough, imagine going home to your spouse and saying "well, we had $250k in the RSU account yesterday, but the SEC/FBI/DOJ/State Department of Whatever, just launched a major probe of our accounting and the company is going to likely have to restate 5 years of earnings. The restatement, associated litigation, and inevitable class action lawsuits just caused the share price to drop 40% today ad I don't think it will improve". That can't happen to the broader market (yes it can go down 40%, but not because of any one company). For me, this is the difference between saying to my wife that I personally screwed up taking on a lot of risk, vs The market screwing up and me being an innocent bystander. My wife understands when the market goes up and down and accepts it for what it is, but gets quite mad if she finds out I've spend a few hundred bucks gambling on a few individual stocks because that is what it is, gambling. So happy wife happy life!

For me, having the wife mad at me for a few months is probably worse than losing the money, but the combination of math (risk), history, and happy wife lead me to only one conclusion if I were in your situation...Sell the RSUs!
This actually happened to one of my parents, in his early 70s. Had more than $1 million tied up in shares and options of the company he had worked for, for more than a decade, at the tail end of a fifty year career. His office was on the first floor; a few floors above him, a different line of business was committing a wee bit o' fraud.

In the end, execs in that business unit were indicted, tried and I believed jailed. He was out a job and ended up getting about 3 cents on the dollar for all his holding. Fortunately, he had other investments (along with a number of other income streams planned for retirement), but this was still a very significant plurality of his retirement nest egg. Ended up postponing retirement for five more years to try to recapture it.

Diversify, diversify, diversify!

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Re: selling RSU immediately

Post by ogd » Wed Oct 22, 2014 11:28 am

RVD wrote:Is the recommendation to sell immediately when it vests the same for all companies or would you offer different advice if your friend worked at one of these types of strong tech companies? My logic tells me it's the same and they should always sell.
Of course! If I thought people working at these "strong tech companies" should sit on their RSUs, I'd buy their stocks myself. There is nothing special about RSUs once they vest, it's as if the employee bought the stock with income, which anyone can do whether employed there or not.

What is special about the stock of your own company is that it's the very same entity paying your salary. This is a stronger-than-normal incentive to diversify away from it. One could invest in another "strong tech company" if one so wishes, it's still an improvement over your own.

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siamond
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Re: selling RSU immediately

Post by siamond » Wed Oct 22, 2014 11:51 am

I am not going to add much, because I think the 2 posters I quoted below hit the nail on its head.

And, by the way, I worked for nearly 15 years for a high-tech company, and I dutifully sold my RSUs (and ESPP) as soon as I could, and diversified elsewhere. Sometimes, 6 months later, I cursed myself. Sometimes, 6 months later, I was very pleased with myself. And funny, it rarely went where I thought it should, and I was a lead strategist, so I had a solid clue about my company's potential... Overall, in hindsight, selling was the right approach.
rob wrote:Would you buy the stock with cash? Vesting RSU is the same as getting a cash bonus and buying the stock...... could be a good or bad plan. Obviously, keeping a lot of your money in company stock is a bad idea - employees are often the last to see the signs.
ogd wrote:
RVD wrote:Is the recommendation to sell immediately when it vests the same for all companies or would you offer different advice if your friend worked at one of these types of strong tech companies? My logic tells me it's the same and they should always sell.
Of course! If I thought people working at these "strong tech companies" should sit on their RSUs, I'd buy their stocks myself. There is nothing special about RSUs once they vest, it's as if the employee bought the stock with income, which anyone can do whether employed there or not.

What is special about the stock of your own company is that it's the very same entity paying your salary. This is a stronger-than-normal incentive to diversify away from it. One could invest in another "strong tech company" if one so wishes, it's still an improvement over your own.

OzMen
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Re: selling RSU immediately

Post by OzMen » Wed Mar 08, 2017 1:32 am

I agree with LongerPrimer

I have earned several RSU's through out my career and found my self wanting to play the risk card to see if I can grow the value of my reward. Yes, it might be a high risk proposition, but if you think about it as most investments, Is money that you were not counting on, and while loosing value it's not ideal, playing the market can bring you some more extra earnings from the risk.
Also consider that if everyone cashes out on RSU's at the same time, this will dilute the price of the stock which could put your at a lower strike price than the company paid for the stock and waiting for a bit to see if you gain the or surpass its vested/Estimate Basis price.
If on the other hand, you are counting on the value of the RSU's, then cashing out as soon as possible is probably the best thing to do.

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TomatoTomahto
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Re: selling RSU immediately

Post by TomatoTomahto » Wed Mar 08, 2017 7:33 am

TomatoTomahto wrote: I imagine that it's roughly the same at most companies, handcuffs being handcuffs :D At any given point in time, my wife has 3 years of un-vested company RSUs. That represents roughly 90% of a year's compensation in total (i.e., roughly half of each year's bonus, which is roughly 60% of annual compensation). More than enough for us, thanks.

And, when the stock tanks, as my wife's company's has, it means that next year you will get even more shares, which does not quite make up for the fact that for a couple of years, you watched your un-vested compensation become worth less and less every month. Boy, aren't we glad that we only have 3 years worth of that stinker stock :sharebeer
In the 2.5 years since this thread was active, my wife has
- left the company she was with, trading in her old RSUs for her new company RSUs
- watched her old RSUs drop to 1/2 or less of their award price
- watched her new RSUs almost double
- moved to a company that, while it awards RSUs, gives more of the bonus in cash

So, we have a 7 digit amount in RSUs. If we had kept the new RSUs, we would have done better. Had we kept the old RSUs, we'd be very very sorry. Had she made the trade (old for new at then stock price) a year earlier, we'd have done better, but it was a $750k delta given the price movements after the trade.

We will keep selling them as they vest, and thanks for the fish.
Okay, I get it; I won't be political or controversial. The Earth is flat.

RetireBy55
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Re: selling RSU immediately

Post by RetireBy55 » Wed Mar 08, 2017 8:33 am

Another thing to consider is the tax implications. If you hold for a year after vesting, it's a Long-Term (vs Short-Term) cap gain, and the difference in tax liability could be quite significant (15/20% vs up to 39%, depending on your bracket).

So, in a way - holding for a year after vest can be up to a 20% buffer on price changes. And holding till retirement (which for us is very close) can be even greater since LT cap gains are taxed at $0 for sub $75K income on married filing jointly - which one could pretty easily put together as a tax reduction strategy by pulling from savings to cover expenses that year, while you liquidate the RSUs for "income".

Both wife and I have RSUs and are holding a pretty good chunk of stock in both companies. She worked for a high flying and well known fiber company that went belly up and we watched a large portfolio go to zero (literally) so you think we'd have learned..current company had a few bad quarters and the stock is down from high 50s to mid 50s but all in all waiting for retirement when our income is < $75K combined so we can sell with $0 LT Cap gain also..assuming tax law doesn't change to a point where there's tax liability for married filing jointly sub $75K on LT Cap gains..

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TomatoTomahto
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Re: selling RSU immediately

Post by TomatoTomahto » Wed Mar 08, 2017 8:57 am

RetireBy55 wrote:Another thing to consider is the tax implications. If you hold for a year after vesting, it's a Long-Term (vs Short-Term) cap gain, and the difference in tax liability could be quite significant (15/20% vs up to 39%, depending on your bracket).
If you sell immediately, you will have $0 (or close to it) in Capital Gains. So, $0 tax. Regardless of your bracket.
Okay, I get it; I won't be political or controversial. The Earth is flat.

investingdad
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Re: selling RSU immediately

Post by investingdad » Wed Mar 08, 2017 10:13 am

The decision may partly rest on your role in the company.

My wife's role puts her in very close contact with executive leaders and she has access to privileged information. She has clear visibility to health of the corporation.

We keep her RSUs.

Theoretical
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Re: selling RSU immediately

Post by Theoretical » Wed Mar 08, 2017 11:28 am

You could always keep the vested RSUs to a set, tiny portion of your asset allocation, something like 1%, that you can afford to lose. That way, you can still feel like you have the skin in the game, without risking a large chunk of the portfolio. The more you keep in it, the more you should consider tilting the rest of the portfolio away from that sector/key dependent industries in the company's workflow, or its style box.

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goingup
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Re: selling RSU immediately

Post by goingup » Wed Mar 08, 2017 12:06 pm

investingdad wrote:The decision may partly rest on your role in the company.

My wife's role puts her in very close contact with executive leaders and she has access to privileged information. She has clear visibility to health of the corporation.

We keep her RSUs.
My partner is an executive leader but we sell RSUs. You never know what can happen--industry decline, consolidation. Who would have thought Chipotle would experience what it did? Sometimes you can see industry changes coming down the track like a slow train (think Blockbuster). More likely you'll have no idea what hit you!

Steve723
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Re: selling RSU immediately

Post by Steve723 » Wed Mar 08, 2017 1:04 pm

Theoretical wrote:You could always keep the vested RSUs to a set, tiny portion of your asset allocation, something like 1%, that you can afford to lose. That way, you can still feel like you have the skin in the game, without risking a large chunk of the portfolio. The more you keep in it, the more you should consider tilting the rest of the portfolio away from that sector/key dependent industries in the company's workflow, or its style box.
Yup, this is pretty close to what I do. I own outright company stock that is valued at ~ 2% of my net worth. The unvested RSUs is an additional 9% of my net worth, but I think I will sell most of those right away as they vest. If the company were to crash and burn for some reason, I would certainly feel it in a number of ways, but it wouldn't be ruinous to me.

I think it's a good practice for Director/VP levels and above to own some company stock outright, even if the company doesn't make you do it. It's just a good practice in my opinion.

dcabler
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Re: selling RSU immediately

Post by dcabler » Wed Mar 08, 2017 1:12 pm

RVD wrote:Should I sell RSUs immediately whenever they vest?

I read through the archives and it looks like the question of whether to sell RSUs immediately when they vest or not is tied to the question of "would you choose to buy this stock anyway if you got a cash bonus instead of RSU?"

This makes sense since one way to think of RSU is essentially your company paying you a cash bonus but using that cash to buy stock for you. You now have the choice to just get cash again or keep the stock.

My only slight hesitation to this is that over the years I would meet people who work at high flying companies (think AAPL, GOOG, AMZN, TSLA, etc.) and would think to myself "wow, you've been working there for 15 years...the stock that you have must be great"

However, finding out that they probably just sold it all as it vested puts a bit of a damper on my thought of admiration.

In addition, when I worked at one of these companies, I sold off all of my stock that I owned before starting the job there because I figured "I have a ton of stock vesting over the next few years anyway"...and it was good but I lost out on a lot of profit because the company shot up after I started...

Is the recommendation to sell immediately when it vests the same for all companies or would you offer different advice if your friend worked at one of these types of strong tech companies? My logic tells me it's the same and they should always sell.
When I started working in the semiconductor industry, stock options were common. I made the decision very early on that stock options are nothing more than a bonus and sold them on the day they vested. Later when our industry shifted from mainly stock options to mainly RSU's, I did the same thing. Likewise when I've worked for companies with an ESPP. At the end of the day, I don't want to concentrate risk in any one area. Holding on to stock from my company means I've got both employment risk from my company and stock risk from my company. So I eliminate the concentrated stock risk and move the proceeds into my broader investments. After 32 years in the industry, I'm still doing the same thing. It has worked out just fine.

printer
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Re: selling RSU immediately

Post by printer » Wed Mar 08, 2017 6:29 pm

If you think you should sell upon vesting, and the reason is to increase diversification (reduce risk), I wonder if you should consider shorting the stock when you receive the RSU grant, and then closing the short (and selling the vested shares) when the vesting occurs. This creates a new risk, though - the risk that stock goes down and you don't vest, e.g., leave the company before vesting.

If you think you should keep the stock upon vesting, then it's good to think about under what conditions you would sell the stock. There are a few scenarios: (1) The stock grows much more slowly than the market, e.g., tanks. (2) The stock moves roughly in line with the market. (3) The stock grows much faster than the market. A couple observations (for simplicity, let's disregard tax): first, in two of these three scenarios, selling immediately works out well. And it's possible that even if scenario (3) occurs, you'll also be fine. That might depend on your time horizon. In what way, I am not sure. Second, if the reason you're holding onto the stock is the possibility of scenario (3) happening , there are two cases. If scenario (3) doesn't occur, then the choice to hold didn't work out very well. If scenario (3) occurs, you will have an out-sized portion of your assets in the company, e.g., 50%. Consider then what your asset allocation might look like: 50% company stock, 25% total market, 25% bond. Then what? Do you sell the company stock, or keep it?

I think a good reason to sell upon vesting is to simplify your life.
Last edited by printer on Wed Mar 08, 2017 6:32 pm, edited 1 time in total.

Theoretical
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Re: selling RSU immediately

Post by Theoretical » Wed Mar 08, 2017 6:31 pm

You're not allowed to short a stock you own long. If you want to do a short-term hedging position, you'd buy an inverse sector ETF or short the ETF for the sector your company's operating in.

printer
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Re: selling RSU immediately

Post by printer » Wed Mar 08, 2017 6:33 pm

Theoretical wrote:You're not allowed to short a stock you own long. If you want to do a short-term hedging position, you'd buy an inverse sector ETF or short the ETF for the sector your company's operating in.
Is having unvested RSUs considered "owning" for this purpose?

zeeke42
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Re: selling RSU immediately

Post by zeeke42 » Thu Mar 09, 2017 1:25 pm

My company's employee trading policy forbids shorting company stock or trading options on company stock. I believe this is pretty standard.

wdr1
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Re: selling RSU immediately

Post by wdr1 » Thu Mar 09, 2017 1:35 pm

I work at a large tech company & enrolled in an internal program that automatically sells my stock as soon as it vests. (This avoids trading windows that I would other be restricted to, which is nice.)

If it helps, a few thoughts I had:
- I wouldn't buy the stock if I had cash, so I shouldn't hold the RSU
- My cash compensation is already tied to a bet on the company/tech industry
- My **unvested** stock is still there. This both has a "lottery ticket" aspect (which you seem worried about losing), but it also means I'm further weighted towards tying my financial future to the company (even with autoselling).

lazydavid
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Re: selling RSU immediately

Post by lazydavid » Thu Mar 09, 2017 2:39 pm

zeeke42 wrote:My company's employee trading policy forbids shorting company stock or trading options on company stock. I believe this is pretty standard.
Even if it's not prohibited, the optics are horrendous. Regardless of the reasoning behind it, what do you think your peers/subordinates/manager will think if they find out you're actively betting against the success of your employer? That's to say nothing of the potential insider trading concerns...

TOJ
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Re: selling RSU immediately

Post by TOJ » Thu Mar 09, 2017 5:03 pm

OP,

I have this same struggle every year. I spend a week after a vestment wondering what to do, then the stock invariably falls a little bit, and I panic sell. So now my MO is to sell immediately. It seems 5 years of owning only index funds has eroded my ability to watch a single stock go up and down. I hate that urge to check (single) stock prices.

unmesh
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Re: selling RSU immediately

Post by unmesh » Thu Mar 09, 2017 6:58 pm

I used to hold vested RSUs, then starting selling them on vest, now I pay taxes with cash on vest and sell in the next few days on an uptick since I got tired of accumulating small term capital losses because of the way the same-day-sales were accounted for and doing carry-forwards to future tax years.

Crossing my fingers that I don't get caught out in a stock price downdraft :D

MotoTrojan
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Re: selling RSU immediately

Post by MotoTrojan » Thu Mar 09, 2017 7:26 pm

For a public company the sell on day one approach may make more sense. All RSU's I have received were from private companies though, with expected returns of ~100% every year, with bi-annual buybacks. My current job has an expected increase of 100-250X (not percent) over the next 5-10 years. High risk, but orders of magnitude higher return than you'd ever get out of the market. It would make no sense to sell that at the first opportunity, in my eyes.

VaR
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Re: selling RSU immediately

Post by VaR » Sat Mar 11, 2017 9:25 pm

I also get RSUs and I also usually sell them soon after vesting. This is best practice from a risk management standpoint.

The company already has vesting to both keep you around and to give you skin in the game. If they wanted you to have more skin in the game, they would grant you more RSUs. They do not, they granted you the amount of skin they want you to have in the game. They expect you to sell on vest as the optimal risk management strategy. Anyone who tells you otherwise is either trying to manipulate you or is simply ignorant or misinformed - or all three.

That said, I think my company is a great franchise and has good prospects going forward. That's part of why I stay here.

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