Microsoft stock allocation out of control

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fung
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Microsoft stock allocation out of control

Post by fung »

Due to the employee stock purchase program, I have about 30% of my net worth in MSFT stock (around $200k).
I was planning to move out of MSFT stock over time (not by selling old lots, but by allocating less income towards it).
The most recent ESPP stock purchase just came in with a purchase price of $209, and MSFT stock is already at $249 now. I was planning to sell, but I forgot, and now the short-term tax is going to be higher. And it feels like we're in a recession, so I'm not sure if I should just hold on to that stock or what, I just feel so averse to selling for some reason. For reference, I'm 24 and mostly focused on long-term investing (I've never sold any stock before, besides 1 ESPP lot of MSFT).
Any advice is appreciated - if I were working for any other company, selling my ESPP for VTSAX would be easy, but for a company that has weathered multiple downturns and has diverse revenue stream (to the point where it feels like its own index fund), it's a bit harder for me.
runner23
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Re: Microsoft stock allocation out of control

Post by runner23 »

Just sell and move on. This is not a lot of money. You’re concerned with tax on new lot? Probably in the hundreds of dollars maybe. Look for tax loss harvest opportunities to offset gain in ESPP sales. You are getting too emotional about it and needs to be just automatic sell as vest if you want to diversify.
MrJedi
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Re: Microsoft stock allocation out of control

Post by MrJedi »

Microsoft already makes up nearly 5% of VTSAX.

You already have your human capital invested in Microsoft, so typically it doesn't make sense to Invest further, it just adds even more risk.
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retired@50
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Re: Microsoft stock allocation out of control

Post by retired@50 »

If this additional income (share price appreciation) had come to you via your paycheck instead of through the stock market, you'd have been subject to the higher "ordinary income" Federal and state taxes.

The fact that this additional income has shown up via capital gains means it will probably only be taxed at 15%. Take the win, and move on. Get diversified and sleep easy.

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HMSVictory
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Re: Microsoft stock allocation out of control

Post by HMSVictory »

I would limit your personal exposure to one stock to 10% of your net worth. Since you also get your income from that same company the reasons to diversify are even more compelling. MSFT is a cash cow, but I would still diversify... today. Don't let the tax tail wag the investment allocation dog.
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invest2bfree
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Re: Microsoft stock allocation out of control

Post by invest2bfree »

fung wrote: Thu Oct 06, 2022 3:27 am Due to the employee stock purchase program, I have about 30% of my net worth in MSFT stock (around $200k).
I was planning to move out of MSFT stock over time (not by selling old lots, but by allocating less income towards it).
The most recent ESPP stock purchase just came in with a purchase price of $209, and MSFT stock is already at $249 now. I was planning to sell, but I forgot, and now the short-term tax is going to be higher. And it feels like we're in a recession, so I'm not sure if I should just hold on to that stock or what, I just feel so averse to selling for some reason. For reference, I'm 24 and mostly focused on long-term investing (I've never sold any stock before, besides 1 ESPP lot of MSFT).
Any advice is appreciated - if I were working for any other company, selling my ESPP for VTSAX would be easy, but for a company that has weathered multiple downturns and has diverse revenue stream (to the point where it feels like its own index fund), it's a bit harder for me.
In 2013 analysts were saying that stock had no future. When it was around 21.

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rebellovw
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Re: Microsoft stock allocation out of control

Post by rebellovw »

I'm in the same boat - different large high tech company. I have lots of ESPP and RSUs over the years.

If I miss the boat and not sell as soon as I get them (minimal gain/loss) - I just keep them. They usually do very well or close to S&P 500.

I revisit when there is a downturn - I just did that recently and sold @20K and harvested a tax loss of 3K (being very careful to avoid a wash sale) and moved all that into Total Stock Market.

I hate paying taxes so I'll avoid selling at a gain.
chassis
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Re: Microsoft stock allocation out of control

Post by chassis »

fung wrote: Thu Oct 06, 2022 3:27 am Due to the employee stock purchase program, I have about 30% of my net worth in MSFT stock (around $200k).
I was planning to move out of MSFT stock over time (not by selling old lots, but by allocating less income towards it).
The most recent ESPP stock purchase just came in with a purchase price of $209, and MSFT stock is already at $249 now. I was planning to sell, but I forgot, and now the short-term tax is going to be higher. And it feels like we're in a recession, so I'm not sure if I should just hold on to that stock or what, I just feel so averse to selling for some reason. For reference, I'm 24 and mostly focused on long-term investing (I've never sold any stock before, besides 1 ESPP lot of MSFT).
Any advice is appreciated - if I were working for any other company, selling my ESPP for VTSAX would be easy, but for a company that has weathered multiple downturns and has diverse revenue stream (to the point where it feels like its own index fund), it's a bit harder for me.
MSFT is arguably the best stock in the market.

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northfork
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Re: Microsoft stock allocation out of control

Post by northfork »

I just let my ESPP shares simmer in the market for 2 years for maximum tax benefit then sell them off. So a rolling 2 years of ESPP shares that get ruthlessly culled on their 2nd birthday. For the first time in the long time I have a lot of tax lots that are red, though. You could always TLH the short term gains you're worried about by selling red shares as well as green ones.

I wouldn't move money away from ESPP though, always max it out. That 10% free money bonus if you sell right away isn't something to pass up.
KlangFool
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Re: Microsoft stock allocation out of control

Post by KlangFool »

OP,

Do not put most your eggs into one basket! 30% of your net worth plus your employment into the same company is a bad idea!

Remember AT&T and Lucent Technologies. 100+ years companies and industries. If it can happen to those companies and industries, it can happen to MSFT. What happened to Intel now?

Sell down to 10% or less.

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vineviz
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Re: Microsoft stock allocation out of control

Post by vineviz »

fung wrote: Thu Oct 06, 2022 3:27 am Due to the employee stock purchase program, I have about 30% of my net worth in MSFT stock (around $200k).
Having 30% of your net worth in MSFT is too much by at least half. You should set a written target that limits this to reasonable percentage (I suggest 15%) and treat this limit as inviolable.
fung wrote: Thu Oct 06, 2022 3:27 am I was planning to move out of MSFT stock over time (not by selling old lots, but by allocating less income towards it).
If you're getting a significant discount through your ESPP, this is probably backwards: participate in the plan fully as long as you can maintain the discipline to sell the stock as soon as you are eligible. If you "forget", do it as soon as you "remember".

You can let taxes play a small role in your decision about how quickly to fix this problem, but I'd suggest selling at least 100 shares immediately and another 100 shares by the end of the year.
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pasadena
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Re: Microsoft stock allocation out of control

Post by pasadena »

fung wrote: Thu Oct 06, 2022 3:27 am The most recent ESPP stock purchase just came in with a purchase price of $209, and MSFT stock is already at $249 now. I was planning to sell, but I forgot, and now the short-term tax is going to be higher
If the price is the one at close on 09/30, it was about $232. $209 is the cost including the discount. You will pay income tax (not capital gains tax) on those $23 per share when you sell them (either today or in 10 years). You'll pay capital gains tax on the difference between $232 and whatever the price is when you sell.

That being said, if you keep them, well, you will have to sell and pay taxes at some point in the future anyway. Better do it now when the CG aren't much ($14 per share as of today's close). If you don't, you'll keep accumulating them until they become a much bigger " problem". Don't let the tax tail wag the dog.

Also:
I was planning to move out of MSFT stock over time (not by selling old lots, but by allocating less income towards it).
That's not the right way to think about it. Max out your ESPP, pocket the 10% discount, and make sure you don't forget to sell the shares as soon as you get them. Same for your RSU shares. Create a reminder in your phone if you have to.

EDITED to add: MSFT is down just like every other stock this year. Do you have any share with losses? If so, sell those too. Do you have any non-MSFT stocks, or ETF/Mutual Funds with losses that you can harvest? If so, do that and offset the gains on older MSFT shares.
theorist
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Re: Microsoft stock allocation out of control

Post by theorist »

Quote from OP:

“but for a company that has weathered multiple downturns and has diverse revenue stream (to the point where it feels like its own index fund), it's a bit harder for me.”


I think MSFT is a great stock. But this quote represents a dangerous fallacy. It is not even close to being its own index fund in terms of risk properties. Your own human capital being tied to the same company compounds this risk issue. Set a hard limit and do not violate it.
KyleAAA
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Re: Microsoft stock allocation out of control

Post by KyleAAA »

Former Softie here who did extremely well with the stock. Microsoft is NOT like its own index fund. Sell immediately going forward and unwind your existing holding in whatever way is most tax efficient for you.
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Re: Microsoft stock allocation out of control

Post by Wannaretireearly »

KlangFool wrote: Thu Oct 06, 2022 12:13 pm OP,

Do not put most your eggs into one basket! 30% of your net worth plus your employment into the same company is a bad idea!

Remember AT&T and Lucent Technologies. 100+ years companies and industries. If it can happen to those companies and industries, it can happen to MSFT. What happened to Intel now?

Sell down to 10% or less.

KlangFool
+1 I used to do the two year wait thing. Now sell asap
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Re: Microsoft stock allocation out of control

Post by Gaston »

northfork wrote: Thu Oct 06, 2022 12:07 pm I just let my ESPP shares simmer in the market for 2 years for maximum tax benefit then sell them off. So a rolling 2 years of ESPP shares that get ruthlessly culled on their 2nd birthday. For the first time in the long time I have a lot of tax lots that are red, though. You could always TLH the short term gains you're worried about by selling red shares as well as green ones.

I wouldn't move money away from ESPP though, always max it out. That 10% free money bonus if you sell right away isn't something to pass up.
I second your sound advice.
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m@ver1ck
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Re: Microsoft stock allocation out of control

Post by m@ver1ck »

Can someone explain how the 2 year rule works? I never could figure it out.
Also should have sold at 350 with Satya - but wanted to wait until January for tax considerations… now it’s at 240.
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Re: Microsoft stock allocation out of control

Post by squirrel1963 »

MFST is a solid company and I expect them to be around for a long time. That said, holding single stocks is very risky, and I would favor selling MSFT and buy total stock market simply on the basis of reducing risk.
In your case rhe risk is even higher for two reasons:
1) you work for MSFT, so if the company does poorly there is a risk of you losing your job and having depressed stock value.
2) MSFT is already represented in the total stock market fund, so you'd be over exposed.

Drawing on my experience I made quite a bit of money on ISO / RSU / ESPP but also lost when I didn't sell right away. If you had ask me at the time "what about the risk of the stock?" I would have said:"it can only go up". So the last megacorps I worked for I sold RSU / ESPP at vest and bought total stock market index. I'm happy with my choice because it reduced my risk.
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squirrel1963
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Re: Microsoft stock allocation out of control

Post by squirrel1963 »

vineviz wrote: Thu Oct 06, 2022 12:16 pm
fung wrote: Thu Oct 06, 2022 3:27 am Due to the employee stock purchase program, I have about 30% of my net worth in MSFT stock (around $200k).
Having 30% of your net worth in MSFT is too much by at least half. You should set a written target that limits this to reasonable percentage (I suggest 15%) and treat this limit as inviolable.
fung wrote: Thu Oct 06, 2022 3:27 am I was planning to move out of MSFT stock over time (not by selling old lots, but by allocating less income towards it).
If you're getting a significant discount through your ESPP, this is probably backwards: participate in the plan fully as long as you can maintain the discipline to sell the stock as soon as you are eligible. If you "forget", do it as soon as you "remember".

You can let taxes play a small role in your decision about how quickly to fix this problem, but I'd suggest selling at least 100 shares immediately and another 100 shares by the end of the year.
Most companies / brokers allow you to choose what to do at vest with ESPP / RSU. The typical choices are:
1. Do nothing
2. Sell enough to cover taxes
3. Sell everything

I would opt for #3 if it is offered
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Nohbdy
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Re: Microsoft stock allocation out of control

Post by Nohbdy »

fung wrote: Thu Oct 06, 2022 3:27 am Due to the employee stock purchase program, I have about 30% of my net worth in MSFT stock (around $200k).
I was planning to move out of MSFT stock over time (not by selling old lots, but by allocating less income towards it).
The most recent ESPP stock purchase just came in with a purchase price of $209, and MSFT stock is already at $249 now. I was planning to sell, but I forgot, and now the short-term tax is going to be higher. And it feels like we're in a recession, so I'm not sure if I should just hold on to that stock or what, I just feel so averse to selling for some reason. For reference, I'm 24 and mostly focused on long-term investing (I've never sold any stock before, besides 1 ESPP lot of MSFT).
Any advice is appreciated - if I were working for any other company, selling my ESPP for VTSAX would be easy, but for a company that has weathered multiple downturns and has diverse revenue stream (to the point where it feels like its own index fund), it's a bit harder for me.
I also participate in a large company ESPP. My company has a much longer track record than msft and I am not at all worried about the stock. Where I work we’ve had a long cultural history of not selling company stock. I’m over it - the security of diversification is worth the guilt.

Plans may differ, but what I do is hold for 2 years to qualify my shares (pay less tax). I then sell to fund more ESPP shares purchased, like a treadmill to take advantage of the lower capitol gains tax rate and the discount.

Whatever you do might work out to be less (or more) money for you short term, long term, who knows. But, a LOT of companies have fallen, including many that endured downtowns and felt diversified. The market has kept on so far, basically.

You need to make a rule that allows you to feel safe in your investments. You posted this question and you know more about your situation than we do, so I think 30% is too much for you. It would also be too much for me.
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Re: Microsoft stock allocation out of control

Post by Auream »

squirrel1963 wrote: Thu Oct 06, 2022 9:42 pm
Most companies / brokers allow you to choose what to do at vest with ESPP / RSU. The typical choices are:
1. Do nothing
2. Sell enough to cover taxes
3. Sell everything

I would opt for #3 if it is offered
Microsoft doesn’t have these options. It’s only #1 for ESPP and #2 for RSUs. All other sales have to be entered manually.
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squirrel1963
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Re: Microsoft stock allocation out of control

Post by squirrel1963 »

Auream wrote: Thu Oct 06, 2022 11:49 pm
squirrel1963 wrote: Thu Oct 06, 2022 9:42 pm
Most companies / brokers allow you to choose what to do at vest with ESPP / RSU. The typical choices are:
1. Do nothing
2. Sell enough to cover taxes
3. Sell everything

I would opt for #3 if it is offered
Microsoft doesn’t have these options. It’s only #1 for ESPP and #2 for RSUs. All other sales have to be entered manually.
OK in that case I'd recommend entering the sales order as soon as the account shows the shares.
Note that you don't have to wait for the settlement date in order to sell, but you do have to make sure you have them obviously. That's what I did in my previous megacorps when #3 was not available.
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livingalmostlarge
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Re: Microsoft stock allocation out of control

Post by livingalmostlarge »

sell. I am annoyed that I kept one lot of DH's rsu from Feb 2021 around $50k because he was leaving the company and I thought okay why not. We had sold everything else along the way of his 4 years. Made a good amount of appreciation and thought okay we can afford to take a little risk. Until then we had sold everything and reinvested it into VOO or QQQ or just buying house, car, etc. The stock right now is down like 70%. Yay lost more than half. I think it was $50k vest and now it's $13k (after taxes it was like $27k and then it boom dropped). Fun times.

I can only imagine how we knew/know a ton of friends/coworkers who kept every single share of stock are feeling now. They only owned the RSU and boy it must be painful
ctjudge
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Re: Microsoft stock allocation out of control

Post by ctjudge »

If OP can explain how a 24 year old can accumulate $200K+ worth of Microsoft stocks thru ESPP given the 15% of salary contribution limit and $25K per year IRS limit with a 10% ESPP discount, it will benefit others who may be in a similar fortunate position to maximize ESPP benefit.
northfork
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Re: Microsoft stock allocation out of control

Post by northfork »

I think maybe OP meant 200k is the total net worth, so .3(200000) == $60,000 in MSFT shares. The sentence is ambiguous though. Maybe OP can clarify though the advice in thread probably wouldn't' change. Still a nice start for a 24 year old!
SnowBog
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Re: Microsoft stock allocation out of control

Post by SnowBog »

northfork wrote: Sat Oct 08, 2022 12:24 pm I think maybe OP meant 200k is the total net worth, so .3(200000) == $60,000 in MSFT shares. The sentence is ambiguous though. Maybe OP can clarify though the advice in thread probably wouldn't' change. Still a nice start for a 24 year old!
Thad was my assumption as well, that the $200k was in total, not exclusively ESPP.

I'm guessing they also get stock grants, likely RSUs, as well. Maybe even a sizable "on hire" grant. And MSFT has had a decent run the last few years, which I'm sure helped.
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