What To Do With Your Concentrated Stock Position

There are a lot of perks that come with spending a lot of time at a company like Intel or Nike. One that you’re probably very familiar with is company stock. If you’re in upper management, you have seen your fair share of stock options, restricted stock, and the like.  

With all of the stock-based compensation available to you, your investments are most likely getting more and more concentrated in your own company’s stock. While the board of directors may see that as a good thing because it aligns your interests with those of the company, from an investment perspective it’s not that great.

The Problem With Concentrated Stock Positions

What’s so bad about owning a lot of your company’s stock? Volatility. The more concentrated your stock position, the more volatile it will be.

Your company stock makes up such a large percentage of your net worth that the stock’s volatility can have a large impact on your personal financial position. The financial roller coaster can be stressful and affect all areas of your finances and personal life.

To make matters worse, just when your finances are tanking will be when there is heightened pressure in the office. A certain amount of the stress level of your job is tied to your company’s stock price. Poor market performance will make things harder at work and you don’t want it to make things harder at home as well.

How To Reduce Volatility

Just for your own peace of mind, it might be a good idea not to have your company’s performance and your net worth so tightly entwined. From an investing perspective, it’s also a good idea to seek out better diversification to smooth volatility.

One way to achieve better diversification is by transitioning away from your company stock into a tax-efficient index portfolio. Such a portfolio can give you volatility similar to the S&P 500. That means instead of bouncing all around from day to day, your net worth would experience about the same amount of volatility as the stock market as a whole.

Other Benefits Of Transitioning Your Wealth

You can transition part of your wealth into a tax-efficient portfolio without taking all of the gains and allow tax loss harvesting at a stock level. By doing this, you will minimize the effects that the transition has on your tax bill.

However, when your money is in a tax-efficient portfolio, there are also ways to access a percentage of it for other projects. Have you always wanted to invest in real estate or something else? Do you have a big financial project you wanted to take on?

Dreams like these may be possible for you. Transitioning your wealth from your company stock into a tax-efficient portfolio may be the key to unlocking the finances to make these dreams happen.

How We Can Help

When working with something that’s as big a part of your financial life as your company stock, it’s important to work with an experienced financial professional. Someone that knows the ins and outs of your specific company and is trained in investments can help you avoid making costly mistakes.

The right move for you will depend on your own unique situation and goals. There is no one-size-fits-all answer and you shouldn’t make huge financial decisions based on one blog post.

Let’s get together to discuss your concentrated stock position to see if moving it to a tax-efficient index portfolio might be the right thing for you.

November 16, 2017

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