Well, what do you think?

[Symbiotic]

Hi All,

Long-time lurker, first-time poster. I'm posting from a new account, because my regular ID would link me to lots of other forums and a careful spelunker could determine my identity. I hope this is okay.

I apologize if there is too much detail here. I would like to (try to) present the whole picture and then encourage any comments, suggestions, or criticisms you care to share. I have thick skin.

I am 29 and have been working for 10 years. I bought a house with my wife after year 3, got very lucky with the real estate market, and sold at the top after a +$250k tax-free profit two years later. I subsequently splurged most of that cash on depreciating "assets" that might as well be worth zero by now. I did purchase two cars that we're still enjoying 7 years later. And I did get a lot of enjoyment and intellectual value out of the rest of the expenditures... just nothing to show for it financially today.

I've maxed out a 401k or equivalent contribution over about the last 8 years resulting in about $170k in the account today.

I have about $100k in a lovely 0.15% savings account today. (See below for important note.)

I have about 30% equity in my $600k home, most through appreciation.

I have "extra" personal property assets of on-order $150k that depreciate at roughly 10% per year. All could be liquidated almost instantly if we needed the cash. I own a very unusual extra vehicle that is probably worth about $65k, with negligible further depreciation, after frictional costs.

My wife suffered some severe medical maladies a few years ago and will never be able to work again. We have not attempted to have her classified as permanently disabled for government benefit purposes. Her medical issues seem mostly resolved, but it is possible they will recur at high cost. She is completely "uninsurable" under standard health and life criteria. She also cannot drive, but she can use public transportation and do most normal things on most days.

We have one infant child. We expect in-home care assistance of about $25k/year for the first 5 years, augmented by me when I am home (I travel extensively but otherwise am home) and family members who will provide support.

I earn approximately $200k in direct compensation per year. The amount can vary by -$25k to +$75k based upon company performance. I expect this amount to slightly outpace inflation as long as I stay with the company. I occupy a senior executive position with almost complete autonomy and no management responsibility.

I have accrued a significant amount of equity options, but my company is not public. We will likely be acquired or go public in the next few years. Our company is quite profitable, we dominate our space, and our business model is about as rock solid as it gets, though we will never grow like a Google (or a Webvan, for that matter). A conservative estimate today for my vested stock today is +$400k before taxes. A moderate estimate is $600k. An aggressive estimate is $800k. We have recent market validation for ~$700k, but I express the range here since I prefer some considerable degree of conservatism.

I have a much larger assortment of unvested stock options that are accruing to me at a valued rate of between $20k and $45k per month -- again depending on where one puts one's estimate -- for roughly the next three years. I expect I will be granted additional stock each year at a velocity that will roughly sustain that extra income figure, modulo the deferral that drags the realization out for numerous years, of course.

I have a reasonable "own-income" LTD insurnace at 80% through my company. I believe I cannot reasonably obtain additional incremental LTD at any favorable price. I would prefer my own policy, but the game is rigged as far as I can tell.

I have a $2.5MM 20-year level term life policy that just went into effect. I don't think I will need it for that long, but this covers my child's pre-earning years.

I am reasonably healthy and quite happy. I like my job and my colleagues, but I would also like to do other things, including other paying jobs, at some point in the next 3 to 5 years. It will be hard to justify quitting at any point as long as my equity compensation is sustained at this level, though. I'm pretty sure that is by design.

I am unable to see myself "retiring" as long as I can feasibly contribute to society. I will volunteer, teach, or work in a non-profit capacity until I fall over, if I can help it. I do want to reserve more time for my own interests in the future, most of which are in various "casual" research or engineering domains. But I would be bored just staying home or even living in three countries and skiing, surfing, and hiking every day.

Both sets of parents are quite frugal and financially stable, and they share their financial status with us to help with planning (for them and us). It is somewhat likely that my family will pass along a reasonable inheritance based on my models -- perhaps $1-2MM in today's dollars -- to two children. My wife's family got very lucky during the dotcom boom and will likely share an inheritance of perhaps $5-8MM in today's dollars to two children. If it seems morbid or presumptuous for me to include these figures, feel free to treat them as zero. I do, sometimes, but statistically I think zero is just really unlikely, especially as long as the estate tax continues to be so generous.

I am completely in indexed stocks today, with a significant allocation to foreign markets including the BRIC. I don't see any reason to change that any time soon. I have an extremely high tolerance for variance. I have a small side hobby that requires me to maintain at least an extra $50k in cash at all times. No, it does not involve selling illegal drugs.

I have about $150k in various credit card balances mostly fixed at between 0 and 3% APR. I used to play this game much more, but I probably lost about $750k in lines during the meltdown. I no longer find this game fun or especially worthwhile, so these will get paid off over the next few years so I don't have to bother with them.


At this point, with the baby redrawing my life picture around me, I am trying to assess where I stand. Please let me wax philosophic here for a few paragraphs:


On the one hand, determination of my FI age seems completely dominated by what value I ascribe to the aforementioned equity holdings. I am a long way off if I set that to zero. I am almost done if we have two exceptional more years and valuation goes well past what I think it should be today. I think it is reasonable to expect a gaussian about the average I delineated above with perhaps a slight skew towards a lower value.

On another hand, I have been (mostly knowingly) irrational about our expenses. I sometimes agonize over squeezing the last dollar out of a deal. The intrinsic value of getting razor blades on a slickdeal is so worth it. On the other hand, I sometimes make near-impulse $15k purchases of esoteric electronics gear and other silly stuff. I could eliminate most of those, but I allow myself to get away with it under some gestalt sense that my NPV can justify it.

We actually live at a fairly benign base spending rate. We have no desire to be in a big mansion. I pay my housekeeper mostly with frequent flier miles. I don't fly helicopters for a hobby. We have reasonable cashflow. I have almost a year of vacation banked at work through a special (and historical) arrangement.

In summary, I feel exceptionally lucky and blessed to be where I am. I have extremely marketable skills and a strong network such that I could probably find another similar job at the same or slightly better direct compensation but probably with a stock compensation package that would take many years to match my current rate -- and only then at considerably higher standard deviation.

I believe I could maybe have $500K in retirement savings and a paid-off house if I had truly optimized for financial net worth over the last decade. I am not sure I would make that tradeoff if I could go back in time given what I know right now. (Although I would definitely have skipped a few particularly shoddy "acquisitions." )

I would like to know if you folks have any thoughts or guidance. I am finding the retirement calculators out there to be pretty weak at modeling my scenario. The Fido one is maybe the best I've tried so far, and even with it I have to make a bunch of gross simplifying assumptions about my income. It is weak enough that I am thinking about writing my own piece of software to better accommodate more complex forms of compensation over time. But then, sometimes, I stop and say -- "wait, why bother with all that? Just keep living and don't worry so much about it."


It feels good to finally get on here and post my story. I guess I'm both proud of most of it and a little embarrassed at some of the dumber choices I've made. (I'd be even more embarrassed if I could expound upon some of my crappier spending choices for you, but doing so would make it really easy for someone to uniquely identify me. Sorry!) Mostly I just feel fortunate and not particularly special. I'd appreciate a dose of reality from some of you who might be -- or have been -- in similar spots.

I harbor immense respect for those of you, especially at lower income levels, who manage to save at incredible proportional rates. I have never met someone in real life who comes anywhere close to some of the examples I see on this forum, but I find myself really wanting to. I imagine it is a needle and haystack exercise, though.

Thanks for reading,

Symbiotic

 

[donheff]

Welcome Symbiotic. I doesn't sound to me like you need to decide how to value some of your more questionable "assets" at this point. Based on what you said it doesn't really matter whether you are FI yet. You like your current job, you expect to continue working either there or elsewhere, your wife has medical needs that counsel maintaining employer health insurance at least until the law settles down on pre-existing conditions, and you are 29 with an infant. So you blew a few $ in your profligate 20s - you can remember those actions with a smile. Spend some time evaluating work options - e.g. would those other opportunities likley return sufficiently more satisfaction to warrant leaving a good job with large potential upside. Then, whether you stay or go, keep pumping as much as you can into investments (consistent with a rewarding lifestyle, of course). In about ten years you will probably be in a great position to make some potentially radical choices about your future.

 

[Arnie]

Welcome. What are your goals for five years from now? 25 years from now?

 

[Coach]

Hi All,
... sometimes, I stop and say -- "wait, why bother with all that? Just keep living and don't worry so much about it."...

Symbiotic, that sounds like your answer to me.

You're quite young, happy at what you do, making a heck of a lot of money, and at most, as far as I can tell, maybe interested in making a change in a 3-5 years. You've recovered from, and learned from, some pretty expensive choices. At this point trying to determine the age at which you will be FI sounds like an academic exercise. Things will probably be much clearer in a few years.

Coach

 

[Bestwifeever]

Welcome to the boards.

Would there be a benefit in having your wife (so sorry about her troubles, by the way) classified as permanently disabled in terms of also qualifying for medical care at some point (inasmuch as you describe her as uninsurable)?

 

[jayc]

Welcome. As with most young high income people, my theory is you can maximize the stash via saving and expense cutting faster than any return on investments. Then let compounding work for you while you enjoy life.
When the stash multiplied by 3-4% = expenses you are FI. Now for the tough love. Splurging +250K with nothing to show but 2 rusting cars is not a good sign of money management. You have a lot going for you what with the high income, bankable skills, and a sizable inheritance for a safety net. You would really have to work at it to blow this. I am going to assume the high cost hobby is maybe auto racing. Put the other $50K in a CD ladder for an emergency fund.

 

[Symbiotic]

Thank you all for your kind comments, including the well-wishes for my wife. I don't have a lot of meaningful content to append to this thread in response to your initial questions, but I should at least make a feeble attempt at replying:

I wish I could say I have concrete 5-year or 25-year goals. Other than "retiring" and being able to work on a long-term project that involves building a non-profit program to work with educating gifted children, I don't have any specific longer-term aspirations. I do want to keep doing some of the extracurricular things I've been enjoying on the side, but don't we all?

Yes, we've looked at trying to get the wife classified as disabled. It appears to be a very drawn-out, tedious, time-consuming process. The nature of her problems make it such that she would likely end up officially qualified to do some form of work, as well, and that makes it harder to argue the case. We have only explored this briefly with one disability specialist/lawyer. We should probably revisit it at some point in the coming few years.

The hobby is actually profitable, but with significant swings. And it is not auto racing, though that sounds like a lot of fun.

Finally, my car doesn't rust because it is mostly made out of aluminum and carbon fiber. And the other one was a slickdeal.

I think I agree that I should just "wait and see" for now. I feel better having written it all down and hearing that nothing is really leaping out at the collective ER audience in terms of direly needing adjustment.

Again, thanks for reading and sharing your thoughts.

 

[Symbiotic]

Hello everyone,

I think it's about time for a short update. News:

a) Equity holdings are valuing above the top of my previous range. Deferred equity is higher based on projected growth. All of this stuff is still worth about as much as the paper it's printed on today, still, of course.

b) We do not need to expend the childcare cost. Wife and baby are doing fine on their own.

c) We are going to move from our more rural location into the city. We will liquidate our gains in our house, but in turn pay frictional costs on the real estate transactions. Then, it is much more expensive in the city, and we will re-tie up much of that cash into another house. We have a choice to downsize our living accommodations or greatly upsize our housing investment. I am hoping to split the difference. (We could also rent, but the choices are pretty slim and generally-undesirable.)

d) We still hold about 100k in cash. I hold enough vacation time to act as an emergency fund should there be a disaster at work.

Per the guidance from many of you, this is too short a timeframe for any real clarity to have formed as far as retirement. I will try to continue to update every 6 to 8 months as my memory manages to support. Until then!

 

[Symbiotic]

Well, it's time for an update. Lots of things have happened since the last one!

First, we moved this year. This was roughly as planned, except we ended up moving closer to the office. I chose to do this because I felt it would reduce my travel time and maximize my chances of finishing off FI in the years before our daughter gets to school age. We would like to move back to the small town where we were before, in roughly four years. Alas, this new area has a significantly higher cost of living.

We were able to sell our prior home very quickly in what was finally a small uptick in demand in our area. We netted about $130k on the sale after fees and repairs. I'm pretty happy with that result.

In this same period, my company went public and at much higher valuations than I used in my estimates. I will admit that I was intentionally being conservative in them, managing my own expectations as I am wont to do. So far I have sold in about 25% of my total exposure (including unvested options) for about $750k. I will continue to sell down roughly 2% per month over the next year and then see how things are looking. Because of vesting timing, today I pick up about $35k/month in exercisable options. I should probably increase my sell rate slightly and take more gains, but I like to gamble and we are exceedingly well-positioned in the market right now... early and with lots of room to grow. Also, I want to start managing some selling for long term gains purposes, and I have to do that I have to defer for a year.

The new home is extremely expensive (like, mind-blowingly) but in an area that does not have much downside risk. We placed about 400k down on this home and are financing the rest interest-only at a rate that probably doesn't exceed inflation. I was able to negotiate away most of the real estate commission by bringing my own business and haggling. We plan to be here only four years, I am treating the home as a consumption item, and I am comfortable if depreciation bites into the 400k pretty hard. Basically, we could not find a place to live that would meet our needs and convince us it was worth it to move close to my work, until we found this place. I mentioned that in my last post from last year, except it was even tougher than I thought it would be.

The fancy car and several other high-value assets were all sold in anticipation of the move. It is wonderful to have less stuff. That we now live in a smaller place is all the more motivation to keep it that way. (Oh, and the pain and soreness that still lingers and that we will endure again in a few years when we pick up and do it all over.) One real advantage of living here is that we can walk or bike or take public transit almost anywhere.

Raising a 1-year-old is fun and tiring. We really just play with her, maybe get a coffee in the evenings after she's gone to bed, and otherwise sleep, clean house, and read. It is truly boring, pleasant, living. Ha, ha. Between that, settling in, and work, I find very little extra time left over to do other stuff, and that's just fine... I tend to involve myself in expensive hobbies when I have time to dwell.

I have gotten better clarity on my ongoing financial picture at work. My cash compensation is going to adjust to about 250k this year, where I expect it will peak forever modulo some nominal, annual inflation adjustment. I will continue to receive more equity grants that equate to a present value of about 250k, per year, as well. That means that I'll have paper income of 500k, but half of it will be deferred over four years and subject to market risk.

Baseline annual expense load for us, including a lot of taxes, comes to roughly $170k. That means we can save about $80k/year cash, plus whatever the post-tax gains on stock sales are. At today's value, I have about $850k of vested stock and $1.2m unvested, all pretax. One of the hardest parts of the equation will be deciding to let go of a ~$500k/year pv income stream -- each year earlier that I stop working, more and more equity streams also get shut down before they reach maturation. I think that is why they call them golden handcuffs!

Now, about that FI... I estimate our post-job, post-expensive-location run rate will be about $52k/year if we are generous with ourselves. We could easily do $10k less than that without any real challenge; we would just stop upgrading our computers and phones and cook some more beans. I think we might be able to do $20k less than that if we were in a fully walkable area, if healthcare law holds up, and if we dodge one-time surprises in the medical and home repair areas. On the other hand, we could certainly spend more if we wanted to travel to exotic places or send our kid to an exotic school. And the above numbers include no housing cost, so we will have to buy a home on top of that.

We have $325k liquid today for emergency fund, but I still hold 10 months of vacation time in the bank as well. (That time keeps getting more and more valuable when it can be used to extend option vesting windows, by the way! Nice side benefit.) I expect to sell most of the remaining company stock exposure within about two years, generating large amounts of tax liability, AMT, and fun along the way. I still do my own taxes, although this year I splurged on a much more sophisticated tool so that I can model the selling over many years.

My guess is that an average scenario would have us at 2.4m post-tax and .4m tax-deferred net worth in four years. There is probably upside of another 1 to 1.5m if the economy continues to strengthen. We feel truly blessed and are grateful -- although unwilling to count unhatched chickens -- for how things have played out in the last year.

Two last thoughts:

1. I don't foresee ever really stepping away from a job, but I would like to work, probably in a non-profit context, doing some specialized education-related things after I'm "done here." This is a lifelong dream. It is also a good match for FI, because I know there'll be many years of slogging and building up the program I want to run, all with very little pay.

2. We have had enormous amounts -- for us -- of cash on hand in the last year as all these transactions have flowed through our accounts. We have a huge bank account now and no consumer debt. Interestingly, I find myself with almost no desire to buy anything. It's weird, and not what I would have expected. I'm not sure if the change in location was the trigger for a behavioral shift, or if the kid is making me do that, or if the pursuit of things was more interesting when the resources weren't there to just have whatever I wanted. Or, maybe I'm just getting old?

See you next time.

 

[Milton]

I wouldn't worry about the extra costs you've incurred in moving to a more expensive area. Sounds like you can afford them, and presumably being closer to work has increased your overall quality of life: which is certainly worth something.

If I were you I would pay off the mortgage as quickly as possible, as I much prefer to be debt-free. YMMV.

Baseline annual expense load for us, including a lot of taxes, comes to roughly $170k.... I estimate our post-job, post-expensive-location run rate will be about $52k/year if we are generous with ourselves. We could easily do $10k less than that without any real challenge.

Even allowing for the tax bite, that seems like quite a discrepancy, especially given that you don't currently spend money on new things.

 

[Symbiotic]

Thanks for writing, Milton.

I wouldn't worry about the extra costs you've incurred in moving to a more expensive area. Sounds like you can afford them, and presumably being closer to work has increased your overall quality of life: which is certainly worth something.

It was definitely one of those calculated tradeoff type of things. Net-net, it's probably roughly zero to slightly positive for me -- significant additional cost, some additional compensation, some shift in my work responsibilities to other interesting areas, and some reduction in travel hassle. I don't lose sleep over it, that's for sure.

If I were you I would pay off the mortgage as quickly as possible, as I much prefer to be debt-free. YMMV.

When we move to a lower-cost area for our "final resting place," we'll probably pay cash for a home and call it a day. I think of the money as fungible and a home as just another asset class.

Even allowing for the tax bite, that seems like quite a discrepancy, especially given that you don't currently spend money on new things.

Here's where much of the excess comes from:

taxes - fully loaded, somewhere around 34%, or 85k.
mortgage - 36k.
some job-related expenses (shower facilities, dress clothes, etc.) - 3k.

On the other hand, we'll have a few extra costs after retirement, including health insurance. But, mostly, my model assumes we hold the rest of our spending to about the same level even if I stop working.

In RE I have not factored in some lump expenses, like college costs, but at the same time I am also not accounting for inheritances and miscellaneous side hustles. There is plenty more time to figure that stuff out when we get a little farther along the path, I hope.

 

[MooreBonds]

We were able to sell our prior home very quickly in what was finally a small uptick in demand in our area. We netted about $130k on the sale after fees and repairs. I'm pretty happy with that result.
...
In this same period, my company went public and at much higher valuations than I used in my estimates. I will admit that I was intentionally being conservative in them, managing my own expectations as I am wont to do. So far I have sold in about 25% of my total exposure (including unvested options) for about $750k. I will continue to sell down roughly 2% per month over the next year and then see how things are looking. Because of vesting timing, today I pick up about $35k/month in exercisable options. I should probably increase my sell rate slightly and take more gains, but I like to gamble and we are exceedingly well-positioned in the market right now... early and with lots of room to grow. Also, I want to start managing some selling for long term gains purposes, and I have to do that I have to defer for a year.

The new home is extremely expensive (like, mind-blowingly) but in an area that does not have much downside risk. We placed about 400k down on this home and are financing the rest interest-only at a rate that probably doesn't exceed inflation. I was able to negotiate away most of the real estate commission by bringing my own business and haggling. We plan to be here only four years, I am treating the home as a consumption item, and I am comfortable if depreciation bites into the 400k pretty hard. Basically, we could not find a place to live that would meet our needs and convince us it was worth it to move close to my work, until we found this place. I mentioned that in my last post from last year, except it was even tougher than I thought it would be.
...
Now, about that FI... I estimate our post-job, post-expensive-location run rate will be about $52k/year if we are generous with ourselves. We could easily do $10k less than that without any real challenge; we would just stop upgrading our computers and phones and cook some more beans. I think we might be able to do $20k less than that if we were in a fully walkable area, if healthcare law holds up, and if we dodge one-time surprises in the medical and home repair areas. On the other hand, we could certainly spend more if we wanted to travel to exotic places or send our kid to an exotic school. And the above numbers include no housing cost, so we will have to buy a home on top of that.

Everyone has their own comfort level with managing risk/letting wins ride...but from the excerpts I included above, it sounds like things have already exceeded your expectations in the positive sense. How much higher do you want them to go before taking a more conservative route? And conversely, if things had gone downhill financially (if you made much less selling your house, and/or your vested equity was worth much less), would you be kicking yourself for even hesitating on not cashing in every share the day after it vests?

The way I look at it is - it looks like you're already well on your way to meeting not only a modest early retirement, but a pretty decent one at that. On the optimistic side, how much financially brighter do you really think things could get by holding on your shares for a longer period of time and letting it ride? And on the pessimistic side - what is the magnitude of the 'if things turned recessionistic, how much worse off would I be?"

I know you mentioned something about letting your vesting reach long-term gain status...what about letting half of it ride for 1 year, and selling the other half right away as soon as it vests? My reasoning is that since you already have a damn strong future, and by your own admission, things have turned out rosier than you expected, what is the likelihood of it getting even better, versus the (greater?) likelihood of things turning worse? Why keep betting on red and taking risks that you apparently don't need to take, with the real possibility that you will have to work longer to make up for your concentrated equity bet, instead of simply walking from the roulette table with your current winnings and relax by the pool sipping daiquiris for the rest of your life?

 

[Symbiotic]

Everyone has their own comfort level with managing risk/letting wins ride...but from the excerpts I included above, it sounds like things have already exceeded your expectations in the positive sense. How much higher do you want them to go before taking a more conservative route? And conversely, if things had gone downhill financially (if you made much less selling your house, and/or your vested equity was worth much less), would you be kicking yourself for even hesitating on not cashing in every share the day after it vests?

I think this strikes right to the heart of one of the hardest questions: what does the marginal utility curve look like for me/my family?

On one hand, it's easy to reason that it just falls off in a way that the downside of a loss is much worse than any gain upside. And that's probably the case for us, and so that means even to get a mild positive utility expectation, we need significant upside and well-managed downside. On the other hand, I've found that I often feel happiest in the face of adversity and stressors. I think a lot of us humans are wired that way. We need challenge and we challenge ourselves -- and maximize personal growth -- in situations where we have less to work with. In some sense, I am concerned that the net worth we already have that is taken off the "roulette wheel" (over about 1 million now) is "too much, too soon." It is perhaps that undertow of concern that, perversely, inflames my natural tendency to gamble further. Maybe I should see a psychologist.

It is possible that I have a non-monotonic utility curve as well. My big post-ER goal involves the aforementioned non-profit activity. It is something that would take many years, perhaps 10 to 15, to reach a successful scale and be a truly meaningful contribution to society. It is possible that having a significantly larger stash might actually change the dynamics of my quest to achieve this goal. For example, with enough personal resources, I could fund part or all of the initiative myself, allowing me to dispense with spending tons of time pursuing grants and begging people for gifts. That might lead to a higher probability of success. That is just one example; I have not given this enough thought to know. You are right to suggest that I think about this further, however.

I know you mentioned something about letting your vesting reach long-term gain status...what about letting half of it ride for 1 year, and selling the other half right away as soon as it vests? My reasoning is that since you already have a damn strong future, and by your own admission, things have turned out rosier than you expected, what is the likelihood of it getting even better, versus the (greater?) likelihood of things turning worse?

Because of the vesting delays and various additional time constraints that are imposed on how I am allowed to exercise and sell stock, taking that strategy even today turns out to be roughly equivalent, in time-adjusted concentrated exposure, to just selling 2% every month as currently planned. There are some wrinkles in terms of deferring some selling for LTCG, but pulling the sale forward more aggressively is partly impossible (because of constraints), partly less tax-efficient (because smoothing the selling over a broader period makes the AMT more manageable), and partly tantamount to "market timing." In some sense, the continuous-small-sale approach is actually like a DCA out of the company stock.

But I agree with you that reducing concentration is important, if only because more is going to come piling in over the next few years. What a great problem to have, eh?

with your current winnings and relax by the pool sipping daiquiris for the rest of your life?

Hehehe. That's a lotta years of hanging out at the pool!

Thanks for your feedback.

 

[kumquat]

If I've read this thread right, the bulk of your net worth resides in options on your company stock. Been there done that.

I looked at my options a bit more than 5 years ago. Decided enough (about $3.5M) was enough and retired. Watched them grow to about $7M, sold about 20%. Patiently waited for more. Stock crashed (well at least to me), had to sell a couple of year's option just before expiry for a lousy $300k (after tax) per year. By the way, my base salary never exceeded $125K. I can't claim to be poor with a few $M in index funds and another in my last year of options (expire in Dec/13, current value $800K).

Just make sure you get something out of those options. Even if you get 50% of the theoretical max you've probably done well. Take the single or double, there ain't that many in field home runs.

 

[Symbiotic]

Yeah, your scenario is interesting. I can't imagine having options in the money for 50 or 60x my base salary and not going ahead and pulling the trigger -- on retiring and on selling. My ratio is much lower today, so sticking with it another, marginal year feels easier to justify.

On valuation, it's quite possible that we could hit a depressive skid in the stock price. I think the market has our visible growth potential priced in well, but one of the things about our model is that we basically can never really go backwards and see the business shrink -- at least, not on a time scale of shorter than 3 or 4 years, and I would have foreknowledge of it if that were going to be the case. Now, one could argue that that element is also priced in, and I think that would be fair, too... except, I can see additional growth potential as an insider that the market does not have access to.

Of course, I could be back here in twelve months doing the walk of shame and lamenting a giant net worth haircut, but I think on a many-year basis that it would be very unlikely to see more than a 50% reduction in cap given our trajectory. I know I have the stomach for large swings and the ability to put aside concerns about losses, so it feels "okay" to stay so concentrated. Not "awesome," but "okay."

 

[Milton]

I've found that I often feel happiest in the face of adversity and stressors. I think a lot of us humans are wired that way. We need challenge and we challenge ourselves -- and maximize personal growth -- in situations where we have less to work with.

Ah, youth! Wonder if you'll still feel that way 20-30 years from now.

 

[Fermion]

Wow great job and big congrats on your company options!

We work for a big old boring company who actually quit giving out options they were doing so poorly.

Sometimes I think about giving life a gamble and trying a new company to get in on some of this 5000% return stuff others mention. Maybe I should put a resume in at Salesforce

I wonder if working at a large company for a bigger salary but no options, one could be justified in buying a mix of long dated calls for some smaller startup companies with the extra income, just to have a chance at the big payday. It is not something I ever considered...

Might be a decent topic for another thread, don't want to hijack here. It looks like you are going to be retired in just a couple years!

 

[MooreBonds]

One other item to keep in mind as you evaluate your exercise/tax optimization moves are the use of Donor Advised Funds.

It's a charitable giving vehicle that allows you to donate money in the current year and take the tax deduction in the current year. Then, you allocate the money as you wish among the investment offerings offered by the particular Charitable fund you go with, and then make "grant recommendations" (i.e. cut checks) to whichever 501(c)(3) organization you want. As a matter of fact, I believe you can even contribute shares of stock and they might be able to hold them for you, if your account balance is high enough! Of course, if it's restricted, it might be another layer of red tape....but it would allow you to experience possible huge tax-free growth for the benefit of your charity(ies).

Technically, you don't own the money once you give it to the fund, so any organizations you want to give money to is called a "grant recommendation" - but it's not like you have to worry about Vanguard Charitable or some other legit enterprise to ignore your request and send all of the money to the George Costanza Human Fund.

I have a DAF with Vanguard Charitable. Opened it several years ago. It has a decent # of investment options, but have learned that, in addition to Schwab and T Rowe Price, several other DAFs operate as well (like divisions of Eaton Vance and other CEF shops).

If you use a DAF, and make a donation equal to your gain on your shares, it would make the decision moot on waiting to make them count as LTCG vs STCG....as well as both furthering your charitable quests, and letting the money experience some (hopeful!) growth in investments.

 

[obgyn65]

Welcome to the forum, Symbiotic.

 

[Symbiotic]

Wow great job and big congrats on your company options!

Thanks. It's definitely something we try to remain thankful for day to day. We threaded the proverbial needle, to be sure.

We work for a big old boring company who actually quit giving out options they were doing so poorly.

A lot of companies have taken to recasting their options as the price falls. In my industry with our job market today, not doing something like that would surely inspire revolt... so there really would be little alternative.

I wonder if working at a large company for a bigger salary but no options, one could be justified in buying a mix of long dated calls for some smaller startup companies with the extra income, just to have a chance at the big payday. It is not something I ever considered...

Although I think that's a cool idea, it's pretty hard to get to liquidity in derivatives on small issues. You'd need to be early enough be able to really see that huge multiplication.

But, really, the problem with it is that most of the fun, for most of the people most of the time, is the actual challenge of the startup. To be financially on the line but not to have the skin in the game might not deliver the same utility to you... or at least to many others.

 

[Symbiotic]

One other item to keep in mind as you evaluate your exercise/tax optimization moves are the use of Donor Advised Funds.

Thank you for mentioning these. I am under a set of rules that prohibit me from transferring shares into such a fund. Nevertheless, the ability to "pre-load" charitable giving during the highest tax years of my life is very important, because I do intend to RE, and we do quite a bit of charitable giving.

One challenge with DAFs is that they do have a fairly high fee -- something like 1% for my one with Vanguard. Although, I know for a fact that some of my charity recipients keep their endowments in investment assets that are structured with even higher fees, so maybe I'm doing them a favor?

One last challenge is that it is somewhat hard to predict whether this year (or any year near this one) will be the year with the highest tax rates. So many of the rules are subject to change in the coming years that it is quite a guessing game. Probably smoothing the investing over time is the best way to reduce the variance.

 

[Symbiotic]

Welcome to the forum, Symbiotic.

Thank you, obgyn! I have actually been a member here for close to ten years, but I am posting under a second screen name because my regular one identifies me in the real world. This is one of the best forums on the internet, in my opinion.

 

[MichaelB]

Moderator note: Community rules state members may not have more than one userid. This situation has been addressed and resolved with the member.

 

[fanmail]

Congrats on your success with the business! Your OP struck me. It's good to know there is someone out there is even younger and way more successful than I am and humble, so good for you and your family.

I also suspect the $50k bankroll profitable habit is mid-high stakes poker.

 

[Symbiotic]

I also suspect the $50k bankroll profitable habit is mid-high stakes poker.

Good read, sir.