Wondering how company equity fits into your financial plan? Join Paul Sydlansky, CFP®, as he explores the nuances of restricted stock units and stock options. Understand their effects on your portfolio through a discussion on tax implications and asset allocation strategies.

Topics Discussed:

• Types of company equity
• Managing restricted stock
• Handling stock options
• Tax considerations
• Asset allocation and exposure

Transcript:

Hi everybody. I’m Paul Sydlansky, the founder of Lake Road Advisors, and welcome to episode 10 of the Build, our 24-part planning series where we take you from start to finish through the Lake Road Advisors planning process. In today’s episode, we’re going to talk about company equity and how you should think about it in your overall portfolio. Company equity can come in many forms, but the two we’re going to talk about today are restricted stock and stock options.

Let’s quickly talk about the two types of company equity that most people see in their compensation packages. And the first is restricted stock or restricted stock units. These are just stock or ownership in the company that are generally vested over one to four years, and these can be paid out either in shares or some companies automatically liquidate them as they vest. So restricted stocks are just ownership in the company that when they vest, meaning that when you hold it for the holding period and they become yours, they can either be sold or you can just hold onto the stock.

Now, another thing to think about is if you hold onto the stock and then you sell it after a year, any of those gains that you gain for that one year will be long-term capital gains. So that’s really important to consider when you’re thinking about buying or selling. Now, the amount of the stock that’s awarded to you is going to be actually taxed at your ordinary income rate, so again, restricted stock units or restricted stock, these are going to vest – payout to you either in cash or in stock, and then you can have the ability to hold onto them and have those long-term earnings or those earnings if you hold onto ’em for more than a year would be long-term capital gains.

The second type of executive compensation that you want to think about are stock options. And remember, an option is just the opportunity to buy the stock at a certain price. So when your options vest, meaning that you own them, you have the ability to exercise them. You’re actually exchanging these options and getting back shares of the company. Now, when you get back shares of the company, you now have the ability to either sell the shares of the company or actually hold onto them, similar to a restricted stock and then sell them at a later date. But stock options remember, give you the ability to buy a stock at a certain predetermined price, and these will also vest over time with similar vesting schedules as restricted stock.

Now that you know the two types of equity or compensation that you can receive as an executive, you really need to consider how that fits into your overall picture and really take a look at the exposure you have to your company. If the amount of stock and options that you own equates to 10, 15, 20% of your overall asset allocation, it’s time to take a hard look at is this too much exposure for me?

Hopefully you found this helpful. If you have any questions on your own company stock options or restricted stock units, please reach out. We’re here to help. If not, we look forward to seeing you in episode 11 where we talk about life insurance. Have a good day and we’ll see you soon.

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network. They can be reached by phone at the Corning, NY office at (607) 438-2914, Ithaca, NY office at (607) 463-8400, or Portland, OR office at (607) 292-2172 or at the firm’s website at https://lakeroadadvisors.com/

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.