Equity compensation can be one of the best ways to build wealth. It can also come with substantial risks. If you work for a company that offers equity compensation there are pitfalls you need to be aware of.

What should you do with stock compensation from your company? Avoid these pitfalls first…

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Full transcript:

SPEAKERS

Anthony Saffer 0:00
Stock compensation can be one of the greatest ways to build wealth. But it can also come with substantial risk. To avoid the pitfalls. If you have stock at your employer, you’ll want to stay tuned. So a company may offer equity or stock compensation to retain and attract the top talent can be a great way to build wealth. What should we be aware of though?

Alex Okugawa 0:21
That’s right. So there can be risks involved. And that’s because sometimes a person’s largest portion of their net worth can be tied up in their company stock. And so it is risky. And I think the biggest risk in this is that it does create an illusion of control, right? I’m a manager at this company, I can control my district, or whatever. So I have a lot of control here. I know my company’s not going to go under, I’m doing a great job. We’re killing it. But that doesn’t cover everything. And that really creates as I said earlier, the illusion of control.

Anthony Saffer 0:52
Yeah. So what should most people do? Because we do need to pay attention to personal situations, what’s best? Absolutely.

Alex Okugawa 0:57
So you have to think how does this stock ownership fit into my overall financial plan? And my investment plan, right? How does it piece together? If it’s going to be one of the largest pieces of my net worth? How do I play this together? How does it fit into my investments? And my financial plan? And my overall timeline?

Anthony Saffer 1:16
Yeah. And so you normally don’t want to just get rid of it all at one time, or divest from it, maybe having a plan to sell incrementally, and really match it up with your overall goals? Right?

Alex Okugawa 1:25
Absolutely. And so let’s, let’s take this back to a real story. So we had an employee who, who worked at Boeing, and within his 401k plan, he had a large chunk of company stock. Again, this doesn’t just have to be Boeing, this can be any company. But in this specific example, it was Boeing. Now, this was back in 2019. And we were talking and going through his financial plan and his and his investments, we were talking about that concentration risk. And for his unique situation, we said Listen, why don’t we target at least a maximum of 10% into the Boeing stock? Now, this is back in 2019. We know what happened in 2020, airlines took quite a bit of a hit. Now, this isn’t saying we got a crystal ball. And we knew exactly what was gonna happen. We knew gonna be a global pandemic, but we just followed basic financial principles that have served our clients very well over time. And it worked well, to his advantage,

Anthony Saffer 2:20
right? And it can go both ways. That’s why you having a plan that says, Okay, if I’m keeping some stock, I’m still going to be happy with the growth, but I’m also diversifying some to be able to spread the risk, and you really do have to look at the stage of life you’re in as

Alex Okugawa 2:32
well. Absolutely. And we did make a previous video, basically, three things that you need to know as an employee about your company stock things like why did they even implement employee stock in the first place, tax considerations, and one other, but this is really important thing for you to take into consideration. Again, stock ownership can be the largest piece of your overall net worth.

Anthony Saffer 2:55
Yeah, the decisions are not always black and white. They’re not entirely clear, but certainly having a financial plan that’s coordinated with these decisions can make a big difference. Absolutely. Yeah, these are the types of things that we help professionals with to address their equity compensation, look at what’s best for them in terms of helping them meet their individual goals. If you’d like to talk to us, go to our website, onedegreeadvisors.com. You can schedule a call with us.

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