Many companies offer their employees stock as part of their compensation package. This can make employees feel more invested in the company’s success. If you don’t own any stock in your company, you might not feel as motivated to go above and beyond in your work. I’ve been receiving company stock as part of my compensation since I started working in 1999, and it does feel good to have a stake in the company. But not all company stock is created equal, and your company will inevitably go through ups and downs.
Even though it feels good to own part of the company you work for, it’s still a good idea to regularly sell some of your company’s stock. Here are four reasons why:
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Diversification: Your career is already tied to your company’s success. If you also own a lot of company stock, you’re putting all your eggs in one basket. If your company’s stock starts to do poorly, you could lose your job and see a decline in your stock’s value. So, it makes sense to sell some of your company stock to diversify your investments.
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Passive income: Selling your company stock can generate passive income, especially if your company doesn’t pay dividends. You can reinvest the proceeds from selling your stock into assets that generate passive income, like dividend-paying stocks, REITs, bonds, and real estate.
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Quality of life: Selling company stock can provide the funds to improve your quality of life today. You can use the proceeds to pay for vacations, a new car, a nice home, or your children’s education. There’s no point in saving and investing if you’re never going to spend any of it.
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Taxes: If you receive Restricted Stock Units (RSUs), you’re taxed when the shares are delivered, which is usually at vesting. If the value of your company stock drops before you sell, you could end up with a big tax bill. Selling your stock options as they vest can help manage your tax liability.
Let’s say you have 1,000 RSUs that vest at $100/share and you’re in the 35% tax bracket. You’d owe $35,000 in taxes on the $100,000 in proceeds. But if you hold onto your shares and the price drops to $35/share, you’d still owe $35,000 in taxes but only have $35,000 left in stock. So, it’s a good idea to sell your RSUs as they vest.
From 2001 to 2012, I worked at Credit Suisse and sold my vested shares every year to diversify my investments. In 2012, I negotiated a severance package that let me keep my deferred Credit Suisse stock, which I sold each year as they vested. Even though the share price was lower, I wanted to sell because I was bearish on the equities business.
In 2023, Credit Suisse’s share price dropped to an all-time low after being acquired by UBS. It’s a reminder to be careful about which company you dedicate your life to. If you pick the wrong one, you could waste a lot of time, especially if you don’t sell company stock to improve your life.
Even if your company’s stock price continues to rise, it’s still a good idea to sell some of your stock each year. No matter how bullish you are on your company, unexpected events can cause setbacks. In 2022, companies like Meta lost five years’ worth of stock gains, and in 2023, Silicon Valley Bank lost 40 years of stock gains.
If you’re bullish on your company, consider selling enough stock to buy things that provide value today, like a nice house. The memories you create in your home are priceless and will appreciate over time.
If you receive company stock each year, be realistic about your company and industry’s prospects. After a while, it’s easy to get so caught up in your company’s success that you lose sight of potential threats. I saw that banking was a lagging industry compared to tech, so I sold my company stock every year, left after 13 years, and started my own online business.
However, with the growth of artificial intelligence and short-form content, there are new challenges ahead. Maybe it’s a good idea to sell some of my company’s stock and diversify. But I’m not motivated to sell because I don’t need the money and my net worth is already diversified.
Company stock is just one part of your total compensation. Treat it like any other investment and do your due diligence.
Do you regularly sell company stock? Have you ever regretted selling some company stock? What do you buy with the proceeds from selling company stock?
With mortgage rates dropping after regional bank runs, I’m more bullish on real estate. I’m also investing in the Innovation Fund, which invests in artificial intelligence, data infrastructure, DevOps, FinTech, and PropTech. About 35% of the Innovation Fund is invested in artificial intelligence, which I’m very bullish about.
