Company stock skyrocketed, need advice

[Retch The Grate]

One rule common to professional trustees is that anything over 15% of a portfolio is an imprudent concentration of assets. I would take advantage of the fact that we are near year-end and sell half of the over-concentration this tax year and the other half next tax year. If most of this is LTG that is frosting on the cake.

From that point I would maintain the concentration at or under 15%, maybe checking quarterly and watching/delaying timing to maximize LTG where possible.

Yeah, it feels way too exposed. When it was just $150k, hey no big deal, whatever happens happens. Well now it happened and it feels very risky. Most is not LTCG sadly, but I can sell the LTCG component now, the ESPP qualifying component on the 22nd when it reaches a year as well, and exercise and sell a chunk of the unexercised options, then exercise and sell the rest of the options in the new year. Trying to decide if I am more risk adverse than hopeful for more gains. The conversation here with everybody is definitely helping.

 

[brett]

I was not going to sell my options. Age 57. The stock price was supposed to keep going up.

My investment adviser recommended sell. He went off and did some work to provide backup for his recommendation. His research was solid.

His recommendation was based f'ast share price, on 'protecting' my early retirement and not being another pig that got slaughtered.

My wife, who was never very much involved in our finanicial affairs, said sell. Run with the cash and never look back. Sage advice. Common sense w/some intuition. She is no slouch!

That was enough for me. I followed their collective advice. Best financial advice ever. Failure to follow would have cost us a seven figure opportunity loss and resulted in a different retirement.

Ignore the tax consequences. Paying tax implies that you are coining it! Focus on the NET!

What is your ultimate goal?

To sell at the top or to secure your financial future. These could be mutually exclusive goals with very different personal financial risk attributes. Your decision.

 

[DrRoy]

If you would not choose to enter into a position if you had the cash, then change it. I would sell about half.

 

[Al18]

I would not sell until you’ve owned the stock at least one year, so you can pay the LTCG rates.

 

[target2019]

I've watched my kid deal with this since 2016. WIth just RSU's the account skyrocketed as COVID hit. It went over $450 at one time. He bought a flat overseas, and now is looking for another in a sunnier country.

As we talked about this over the years, the best I could tell him whne he asked for advice when it hit a high, or dropped, is that it may go up, but it may go down. Sure enough, it did that. What a genius I am!

It dropped to $100. It regained $200, and it is now over $250.

He now understands that if he has a use for the gains, he should exercise judgment in setting that aside BEFORE he needs it.

The cap gains taxes are a concern, but you can only make money on the shares if you sell.

So, I say trimming is a very good idea. You could establish a planned schedule of trims, for instance. Depending on new conditions in the future, maybe go with the trim, or delay to the next scheduled milestone,

 

[Retch The Grate]

I sold just all the LTCG shares that I owned outright, I will wait for the 22nd on the ESPP shares that are about to be tax advantaged. I exercised and sold half the options, and will do the rest in February when I first come out of my black out period in 2025 to reduce total taxes while taking a chance on the stock continuing to rise. Thanks for the viewpoints everybody, it was nice having perspectives from people on here as well as the friends and family that I surveyed.

 

[Dash man]

I can only tell you what we did when DW’s company did a merger twenty years ago and took off. We took half off the table and diversified. It kept growing and we took more and diversified more. A few more rounds and things cooled off. The diversification paid off and we could retire. Her former company continues to do well and we still hold some stock. We had paid a bundle in taxes over the years, but it was worth it for the peace of mind of being diversified.

 

[RunningBum]

I won't tell you what to do, but here is one data point - a set of one, so take it for what its worth. A friend who worked in a high flying internet company had enough vested options to comfrotably retire in 1999. He didn't sell. He finally retired in 2020.

High flying stocks tend to be very volatile.

I could have written that post, except I did take some off the table, so my ER was deferred until "only" 2013. I could've gotten out a couple years earlier but I wasn't motivated to give up an easy part-time, remote work at home gig working mostly under the radar with very little pressure most of the time in those final years. The early 2000s when I was working hard and lamenting lost opportunity to get out was pretty hard to take. Even "just" 10 or so years of deferred retirement is my experience suggesting you take a lot off the table.

 

[kgtest]

Jump! You got the gold!

Then buy some AAPL!

 

[Texas Proud]

Be sure you understand if there are any restrictions on when you can sell. In a former life I was limited to 4 multi-week trade windows per year, each occurring about 4 weeks after the earnings release dates.

That is because you were a big shot!!!

I got into that window for a short time because they gave me access to the whole accounting system and I could get 'insider info'... I asked to get out of that so I was not restricted...

 

[Out of Steam]

My wife is dealing with this on a smaller scale right now. She has diversified over the years, and the ESOP holding is a little under 10% of our assets. She is concerned about the company's customer base, and would like to use the money to build after-tax savings and roll the remaining assets into retirement accounts as she is allowed to.

 

[target2019]

I re-read the OP. The stock is 37.5% of net worth. If investable assets are less than net worrth, you may want to calculate the percentage that way.

Now that you have the beginning of a plan, you'll have to eventually decide on how far to go. One of the cautions that goes around quite a bit on these boards is that the risk level of holding the stock is greater than just the value of the stock. This is because your current employment is tied into the company. So the job and stock could go south.

But maybe the company goes north in the future. So your idea of not selling all has some merit.

 

[chemEguy]

Posting here because this is more about the decision making process than about analysis of my company's prospects in particular.

So I am generally an index funds only person, being shaped by the Motely Fool FIRE board since the mid 90s and then here. But I have a bunch of company stock that was granted when we were acquired by our current parent company. Said parent company is AppLovin, an ad tech company that is up so much since our earnings came out last week that if I sell it and pay 50% of it in taxes, it now represents 37.5% of our household net worth (not including the house which I always feel weird about including, the house moves it to 29.6%).

I'm struggling with what to do. It could drop back to the $13 a share or so low from a couple years ago (it is at $290 now). Or it could muddle along at roughly the current value, or it could conceivably double again if our revenue grows as crazily again or people just decide they want to pile in now that we entered the NASDAQ 100. I'm trying to do Bayesian reasoning on it but I can't even come up with reasonable guesses for percentage likelihood of those scenarios.

Including house value in our net worth, selling the company stock now would put us close to what I consider escape velocity where as long as my wife keeps working till she hits retirement age, we'd definitely be able to retire with a lifestyle similar to what we live currently. I still have my job (and weirdly if they lay us off the stock might jump since my part of the business is a drain on the performance even if we are wildly successful), and like making video games, so I expect to keep working myself too, though ageism may impact that whenever I do have to hunt for a next job.

So taking the profits now locks in that somewhere in the 10-20 year range we are all set. Hanging on might mean in a quarter or two we are all set, or it might mean we are pushed back 5-10 years from being all set... :/ Risk, reward. I don't have to sell everything, so I could sell all the stuff that qualifies for LTCG, but that's only about a third of it (2/3 of it is unexercised options, 1/6 is exercised options I've held for a couple years and 1/6 is ESPP purchases that mostly are qualifying after the 22nd of this month).

I really hate owning individual stocks, though this is the first time it has been a problem in a very good way. Any advice or perspective for helping me make a decision would be great.

You went through the 2000 tech bubble just like I did.

You know how this story often goes.

My advice is to take a lot off the table.
How much is your call, but based on what I saw in the chart I’d liquidate at least half and move it to an index fund.

Congrats.

Don’t wait too long.

 

[Aerides]

selling the company stock now would put us close to what I consider escape velocity where as long as my wife keeps working till she hits retirement age, we'd definitely be able to retire with a lifestyle similar to what we live currently. I still have my job (and weirdly if they lay us off the stock might jump since my part of the business is a drain on the performance even if we are wildly successful), and like making video games, so I expect to keep working myself too, though ageism may impact that whenever I do have to hunt for a next job.

Selling the stock now (or, my vote, at least a good size chunk of it) would be rational.

But saying I'm curious why your wife has to keep working but you can take more of a glide?

 

[landover]

You went through the 2000 tech bubble just like I did.

You know how this story often goes.

My advice is to take a lot off the table.
How much is your call, but based on what I saw in the chart I’d liquidate at least half and move it to an index fund.

Congrats.

Don’t wait too long.

I joined a new company, initial employees had lots of options, I suggested one to resign and move to Florida/zero tax state, he could have bought a house free just by tax savings, but he did not listen and lost it. Few other sold and retired.

I am afraid there is no right or wrong answer, if amount is "enough" to ER according to one's definition, take that much out.

 

[Retch The Grate]

Selling the stock now (or, my vote, at least a good size chunk of it) would be rational.

But saying I'm curious why your wife has to keep working but you can take more of a glide?

She's 10 years younger than me and really likes having a job. She's been unemployed for the last year and found it very very hard, while the last time I was unemployed (2017 for 11 months) I was like "yeah, I don't need a job to be happy anymore". We've got potential ageism in video games rearing its head for me, if I lose this job, I expect it to be much harder to get the next job, and the pay to be much lower. I expect to keep working because making video games is fun and FI was always my goal, not RE, but lots of factors at work there. Also my investments are almost at that escape velocity point where I can keep up my share of the household expenses even if I'm not working and still have my portion growing till it is large enough that I can afford to cover her too which is my personal goal since she isn't as focused on growing a nest egg to be able to retire on (different attitude towards money, different background coming from Europe with expectations about how much you need, etc.).

Selling the stock would have me way past FI if I was still single and didn't own this house (wouldn't trade the lovely wife and the house for being FI already however). As a couple it gets us close to the point where I'm confident the annual gains even if I wasn't contributing financially anymore would get us to the point where neither of us would need to work while maintaining a DINK Bay Area techie standard of living at around the time she might be willing to work less.

 

[Retch The Grate]

I would not sell until you’ve owned the stock at least one year, so you can pay the LTCG rates.

ISOs, so sadly exercising holding for LTCG comes with risk as you have to pay taxes on the paper gains. I should have exercised it all back when it was $13 a share.

 

[Texas Proud]

Can you exercise some each year without losing any new options/grants?

I was thinking about it and would set up a plan to sell a good chunk each year for the next 5 or more years...

Say you sell 5% this year and 5% early next year... you are down to 27%... then 5% the following repeating until you got down to a reasonable amount...

If the stock keeps going up quickly you will more than likely keep at a high pct... not really knocking it down much but pocking money along the way...

If it goes down... you sold at the higher price and all is good...

 

[HI Bill]

I'd take the win and cash out as much as you can't afford to lose. I hold an appreciable amount of assets (40% of total) in an ESOP (employee stock ownership plan) for a company I formerly worked for, which had skyrocketed about 300% in just four years. Today I awoke to a nasty 10% drop. I would have diversified if it were possible, but I have to wait a few more years until I'm eligible for cashing out.

 

[thod]

Another aspect unmentioned yet, is once both of you are not working, you might need to qualify for ACA health plans. When that happens, managing your AGI becomes very important for subsidies.

Assuming you will eventually be in that situation, it might be better to do more cashing out/exercising now during normal (non-ACA) tax years.

Just guessing this could matter, I did not see your ages, except that you are 10 years apart.

 

[audreyh1]

Just sharing my concentrated in company stock story:

My company stock never skyrocketed, although it did quite well over many years even though there was a sine wave involved, although over long periods it kept floating higher.

I was fortunate to be granted some stock qualified stock options that vested over 10 years and I bought before the company went public, therefore I was already a long term holder. DH also had some options.

From a small initial investment the company stock grew to >90% of our net worth. I was only 35 years old, so we hung on to it, and I added more at going public and later through ESOPs and exercising much smaller option grants as they vested.

At 37 I started seeing inklings of being able to retire quite early and soon. I hung on but I did sell a small amount to pay off my house - removing that needing to pay the mortgage risk. I was still young enough to recover career wise.

In the late 90s we had a couple of tech stock crashes that hit the company too - 97 and 98 - but fortunately recovered fairly quickly. I tended to take a little off at each top. Finally reaching 39 it became clear that we could retire within a year, and I promptly divested 2/3 of the company stock - enough to build a sufficiently large diversified retirement portfolio that we could live off of. That was really my criteria, deciding the portfolio size that we needed to retire on independently of the company stock.

Then I retired (pre 2000 dot com crash). After retiring I ended up divesting another good chunk of the company stock, but divested the rest over the next 14 years. Still a rollercoaster, but never the 1999 massive run up and unrecoverable crash that so many tech stocks experienced then. If the company stock had gone up wild I’m sure I would have divested more quickly. It continued the usual rollercoaster and had stock splits and gradually made new highs. So every 2 or 3 years I sold another chunk, finally around mid 2010s I decided it was time to close the book.

 

[corn18]

This is why folks need an Investment Policy Statement (IPS). When I was working, mine said to immediately sell all vested RSU's and invest them in my taxable account in accordance with my AA. Said the same thing for my bonus. Both were very large each year and each year I would look at Audi R8's and Ferraris and then remember to read my IPS. That thing saved my arse so many times.

 

[MC Rider]

If you are well past "escape velocity" why not get that Ferrari or Audi or

I went with Ducati. Less cash velocity required.

 

[Samething]

I was in a similar situation when I retired. We had a company ESOP plan. Over 34 years while I was working there our stock did very well. It was extremely hard to sell nearly seven figures worth of the stock to diversify. It’s a private company and we had blackout dates. I timed my retirement date to coincide with an open period. My cost basis was low on the shares I sold so that helped with the tax burden. I still have quite a bit of company stock but if it went to zero my retirement would still be fully funded. I will start to sell more after I quit managing my MAGI for the ACA next year.

 

[tulak]

I'll share my company stock story. The stock did well, until it didn't. And there it sat for over 12 years. Around year 7, I learned about index investing - thank you Four Pillars. Just in time for 2008, but it worked out just fine.

Later I switched companies, at which point the new company stock spent the next decade flat, even though it had more volatility, which was nice for ESPP.

The lesson for others: if I join your company, odds are good the stock will stay flat for the next decade.

The lesson for me: sell ESPP/RSUs immediately when they vest and invest in index funds.

Luckily that lesson has worked well for me.