I own a ton of company stock. I’m supposed to be doing something with it, right? Right?

Do you find yourself, after a few years of working at the same company, the proud owner of a whacking big pile of company stock?

Several of my clients originally reached out to me because they were in this very position…and were uncomfortable. They knew they should probably do…something. They were aware, at some level, of their lack of “diversification,” but didn’t have any idea what to do. Maybe they should sell all or most of it? But then what should they do with the cash from selling? Annnnd so the stock just continues to sit.

This is not going to be an article about how you should sell it all, every single time. (Though, admittedly, I tend in that direction.) It’s more an article about how you need to make a plan for this stock, informed by your current financial situation, how you feel about risk, and what you want out of life.

Make it intentional, whatever it is.

How Do You Get Into This Situation?

Most of my clients get into this situation because they have Restricted Stock Units that have been vesting for a while now.

The thing about RSUs is: As long as you wait around long enough, continue to work at the company long enough, the RSUs will vest, and you now own more company stock. You don’t have to do anything. You don’t have to make any choices. The stock just shows up. And piles on top of the last bunch of stock that showed up.

You can still get into this situation through stock options or 401(k) match or Employee Stock Purchase Plans. I simply see this much more with clients who receive RSUs.

To be fair, of course, in the last several years, unwittingly hanging on to a growing pile of company stock has worked out (really) well for many of you in tech. In the last five years, several of the big companies’ stocks have risen a lot*:

  • Google: 95%
  • Apple: 160%
  • Facebook: 180%

And the winner of the “You want me to sell my company stock? Are you crazy?” contest:

  • Amazon: 330%

*  These numbers are approximate, and measured after the recent market … “unpleasantness.”

So, step 1 to getting into this situation is to simply not sell the stock as your company gives it to you. Step 2 is to have the stock grow like gangbusters. Voila! Big pile o’ company stock.

Why this Position Is Risky

“Luckily,” the last month has shown us exactly what the risk is. In the month of October, Amazon lost almost 500 points, about 25% of its value, dropping from about $2000/share to about $1500/share. If you have most of your wealth in Amazon stock, you would have lost a quarter of your net worth.

‘Tis true, the broader stock market can also go down 25%. Hell, it went down over 50% in the Great Recession (2007-2009). It then, however, proceeded to roar back to life, reclaiming that loss by April 2012, about 3 years after rock bottom.

Anyone other than me work in tech through the Dot Com Crash of the early 2000s? Here’s a list of high-flying dot com companies that didn’t survive. As in, their stock became worthless. Forever.

“Facebook/Google/Apple/Amazon become worthless?” you might scoff. “Hardly.” Okay, I tend to agree. (Although, hello, Enron?) So let’s look at a less egregious, but more relevant, example: IBM. You know, once the darling of the tech industry.

In the 1990s, the last Dot Com go-go-go era, IBM gained almost 800% in the 5 years starting June 1994 (ending June 1999). I imagine IBM employees were feeling miiiiighty good about their company stock. Want to know how IBM has performed in the last 5 years? It has lost about 33% of its value.

Yes, maybe it’ll eventually recover. But there’s no law saying it has to. And there’s no law saying that Google/Amazon/Facebook/Apple won’t become “second tier”/”old technology” at some point. Losing 33% isn’t the worst thing ever, but it is a hell of a lot worse than simply owning the entire stock market, which has returned 50% in the last 5 years.

I’m just sayin’ that as “surefire” as your company stock seems now, after years of rocket-fueled growth, any single company is a huge risk. If it’s your employer’s stock, then it’s even bigger, as you could easily lose your investment money and your paycheck at the same time.

What You Should Do Now

Let me quickly dispatch with the high-level advice: It depends. Whew, now that’s over, we can into something more, shall we say, useful.

We financial planners tend to be a conservative lot. “Spend less! Save more! Buy insurance! Invest like a boring person!” Why do we recommend that course? Because you can control it. Anything else is a gamble, out of your control.

In that vein, the typical advice we give is to have no more than 5% of your investment portfolio in a single stock.  Does your company stock make up more than 5%? If so, you could simply sell everything above 5%.

It’s certainly not unreasonable to hew to that rule of thumb. It’s prudent and conservative (as investing goes).

On the flip side, there ain’t no way that selling all your company stock as you get it and investing the proceeds in the typical inexpensive, broadly diversified portfolio is going to make you rich. It just doesn’t happen.

You get rich through a “concentrated” holding. The equivalent of putting all your money on Red 22. (You can also, as seen in the above section, become unrich through the same holding, but we’ve already covered that.)

So, those are the two ends of the spectrum:

  1. Sell it all and invest in the typical, yes boring, inexpensive broadly diversified portfolio I recommend to all my clients OR
  2. Keep it all and hope to hell your company does well because if it does, you’ve got it made (financially, at least).

The right answer probably lies somewhere in between. And whether it lies closer to the “Sell it all!” end or the “I’m going for broke!” end depends on a few things:

  1. How you feel about risk.
    Will you be able to sleep at night if you keep all that company stock and the stock market dips or even crashes?
  2. The rest of your financial situation.
    Are you on strong financial footing outside of this company stock? Can you “afford” to take more risk because losing all the money won’t be catastrophic? If you don’t have an Emergency Fund and you don’t already have a good start on saving and investing (boringly) towards financial independence, then you really need to take the safer route (“sell it all”) until that foundation is laid.
  3. The flexibility of your goals, in terms of timing and dollar amount.
    If you keep all the company stock, you could end up with no, some, or lots of money. If you’re willing to, say, delay buying a home because your company stock just tanked and now you need more time to save up a downpayment, that flexibility works in your favor. But if you need to buy that house at that time, you need an approach to investing and saving that is more under your control.
A Thought Experiment

How much money do you currently have in company stock? Now, take away 60% of that. How about 80% of it? How much $ is left? What just had to change about your life?

  1. Did your “early retirement” just become plain old “retirement”?
  2. Did your upcoming condo just evaporate? Or get much smaller or in a different location?
  3. Do you have to wait another 5 years to change careers?
  4. Can you no longer afford to stay home with your kid for a while?

If those changes are acceptable to you, then okay, you have not-quite-my-blessing to hold more of the company stock.  But if those changes aren’t acceptable, then holding all that stock is too risky.

See? It really does depend. This is one of those situations where I can’t imagine working in the tech industry…because you aren’t paid to be investment and planning gurus! You’re paid to be UX design/programming/database-ing/management/law gurus.

This is no small question to wrestle with. But wrestle with it, you must!

Do you want help figuring out what to do with your giant pile of company stock? Please reach out to me at meg@flowfp.com or schedule a free consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

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