RSU’s can be a great way to build wealth – but incorrectly managed could be a huge risk.

Today we are discussing a framework on how to handle your RSU’s…

Restricted Stock Units

Resources:

• If You Have Restricted Stock Units, Here are 5 Effective Ways to Reduce Your Tax Bill

Full transcript:

SPEAKERS

Alex Okugawa & Anthony Saffer

Anthony Saffer 0:00
Should I cash out my RSUs they can be a great way to build wealth but incorrectly manage they can be a huge risk. Today we’re gonna discuss a framework for how to handle your RSUs.

Hi there it’s Anthony and Alice from one great advisors. If you’re new here, we help folks with all things retirement tax and investments. Today we’re answering the question, should I cash out my RSUs, we’re not going to really take a deep dive into what RSUs are, we’re assuming you know that. But we also are going to link to a post that our colleague Matt wrote, and he takes a deeper dive into what RSUs are. So let’s talk about that. Alex, should I cash out? For us use?

Alex Okugawa 0:40
Yeah. And it’s kind of like the answer, no one really wants it. It really all depends, right? So even if you sell, what I would say is, it doesn’t have to be everything, okay? I mean, me personally, I would still keep a healthy amount in my company’s stock, but I would put some constraints around it and put a plan around it. You know, maybe it’s five to 10% of my total portfolio, depending on my age and risk tolerance. What I’d say is a lot of people to I don’t know why they just have this misconception that if I sell my company stock, that means I’m going to cash, right? That doesn’t have to be the case. You know, a lot of times when we recommend this to folks, or give them ideas on how to handle this, we’ll say listen, if we start divesting from some of your RSU, company stock, to help decrease your concentration risk, what we can do is we can take that money, and we can invest in the broader economy, the broader stock market. And what that does is it still gives you some of that upside potential. But it may limit some of that downside and risk exposure, especially with deep concentration, where not only is your wealth, and your overall net worth tied to this company stock, but your income is also tied to it. Because to be perfectly honest, if it was me, I’d be really stressed if my income my net worth was tied to a single publicly traded stock, I just wouldn’t

Anthony Saffer 2:01
yesterday and concentrated can produce big wealth. I mean, we’ve seen that quite a bit. But we just want to understand the risks that are involved in that.

Alex Okugawa 2:09
Yeah. So like we said, individual stocks can be volatile. And the thing is, is that you could pay a lot of taxes on something that very quickly drops in value. Again, we assume people know how RSUs work. So we’re not going to go into that. But I want to pull this chart up because I think it’s gonna be helpful as we go along with this example. So let’s say you worked at Shopify, and we’re just using them as an example. And you had RSUs. So as we all know, Shopify experienced great gains in 2020, and 2020 2021. And at the beginning of this year, 2022, dropped very sharply. So what happens is, let’s say you had some RSUs vest at the end of 2021. Well, that’s what the value is based on, that’s what your tax is based on. And then when you go into 2022, to pay your taxes for the previous year, what are you going to turn to pay that tax bill, right, maybe you have some cash on the sidelines, maybe you have other resources that you can use to pay that hefty tax bill, from those shares vested at the end of 2021. A lot of people, what they do is they sell their company stock to create the cash to pay the tax bill. And this can work fine when things are going well. But when things start to turn, like we’re experiencing now, it can put people under a lot of stress and a big bind. Because again, not only is my net worth dropped substantially, my income might be at risk now because the company is under stress. And I got a big tax bill. And if I haven’t adequately prepared for it, I got a big problem on my hands.

Anthony Saffer 3:39
Yeah, so that’s just trimming it a little bit to say, I know I’m going to have this tax bill coming up, I’m going to sell enough just to set that money aside to be able to pay the taxes. You also talked about diversification. And I’ll give you an example of a claim well, we’ll just call him Bill. And he had a large amount in a one of the headline tech companies back in 2000. And things were really, really booming. And the strategy at that point in time was to diversify in that fund comm that company came down quite a bit. And yet he kept the wealth by diversifying to the

Alex Okugawa 4:11
broader market. And that’s the thing too, I mean, I’m sure you wouldn’t say oh, it’s because we had some technical analysis. And we knew exactly that this stock was going to drop, it was really just following grounded principles. And that’s, at least from my perspective, that’s where having a third party come in, that isn’t emotionally tied to like the company or the wealth and to say, hey, here’s probably what I would do if I was in your shoes. I think this is a good principle to follow and whether or not someone takes the advice, that’s their choice. But as long as we provide sound advice rooted in principles that have worked well over time, and in this case, it paid off, you know,

Anthony Saffer 4:45
and now let us know what you think. Have you cashed out some or all of your RSUs Why or why not? Leave your thoughts in the comments down below and if you like what you see today, please like and subscribe for more. Thanks for watching.

Transcribed by https://otter.ai

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures