[Diversification] How to Manage Equity Compensation?

[Don Jean]

Hey Everyone,

I was hoping that the collective wisdom of the forums could help put me on the right path this year in regards to a subset of my investment holdings. These forums have demonstrated to me that I have a lot to learn in the coming year.

At face, the theoretical question is rather straight forward:

• A growing amount of my wealth is tied to vested shares in the equity compensation program at work.
• Is it prudent to diversify away from these holdings?
• If so, what is the best way to do so?

There are a number of considerations that come to my mind; however, I am uncertain whether they are all relevant or practical.

• From a tax perspective are there any other considerations beyond short and long term capital gains?
• Is it sensible to liquidate all holdings qualifying for long term capital gains this year at a rate of 15%?
• I own investment property. Not sure whether that can come into play?

Note: Capital losses from automatic tax loss harvesting from last year pale in comparison to the size my holdings.

[MustacheAndaHalf]

The most important thing is that both your assets and income are tied to the same company, and diversifying away from that is a good idea.  Since you have prior year capital losses, selling won't impact the tax you pay next year.  Sounds like you should diversify soon, based on what you've said.

Main drawback is that you can use $3,000 / year of capital loss against your income.  So the loss you use up is coming from some distant year's income.  But the larger the loss relative to $3,000 the less that matters.

[forummm]

Generally I think it's not ideal to have too much company stock. I would be very uncomfortable having too much of it myself. I would try to get rid of it in an orderly fashion, balancing the tax rate. Since you can do long term capital gains for some of it, I would take advantage of that for those shares. And definitely do it for the shares you can fit into the 15% bracket.