Company stock - what to do with it

[nyekolas]

First time posting here :)

I work for a large silicon valley company you've all probably heard of. A significant part of my compensation is issued in a type of company stock (not sure what the technical/correct term for it is). I've had it explained to me as essentially it's as if my employer hands me a bunch of money and then looks over my shoulder as I buy their stock with it. So taxes are withheld from this transaction upon my receiving them. There is a vesting schedule, etc.

At this point I have a few options:
(1) sell immediately for cash with taxes already withheld (there are no capital gains then).
(2) hold onto them for a least a year before selling to avoid short term gains.

I have a lot of confidence in the value of this particular company (everyone in the world uses it) but at the same time it does seem like its decreasing the diversity of my portfolio to have a relatively large chunk of money invested in a single company. My inclination is to convert it to cash upon receiving and re-invest that money in a more diversified way like in an index fund.

What does the community think my best play is here?

[PDXTabs]

Most people around here are going to tell you to sell as soon as your restricted shares (RSUs - restricted stock units?) vest and invest the proceeds the same way you would cash. I would agree unless you have some reason to believe that your company's stock is substantially under-valued by the market, pays a large dividend, or both.

[Telecaster]

The usual advice is that you should diversify away from the company you work for, because if anything bad happens to the company, then both your job and investment are at risk. 
And bad things can happen to what we think of as dominant companies in their industry.  Think Kodak or Yahoo!  You never really know, in other words. 

That said, most people who get really rich in the market do so by owning lots of a single stock.  So after you are sufficiently diversified, it isn't crazy to keep a certain amount of company stock, if you think the outcomes are good. 

[starguru]

I also work for one of those companies.  I usually sell and reinvest in index funds.  I’m currently keeping about 60k (2%) of my portfolio in company stock.

It sucks when the stock rises.  But I remind myself I have hundreds of thousands of unvested shares that participate in those gains and vest regularly.


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[appleshampooid]

I agree with the common MMM wisdom to sell all and invest as you would with cash.

I worked for Amazon from 2006-2010 and sold at least 750 shares at prices between $70 and $200 (that was my new hire grant and I got some more later). It sucks to look at how much those shares would be worth now. Last time I checked the vested shares I sold would be worth around $600k now. Not to mention the unvested shares I left on the table.

Despite that, I have the same situation coming up at my current job and will probably do the same. Maybe keep 25% of my grants to quell the FOMO? Haven't decided yet, but I'm leaning toward sell all. I think we're massively overvalued, but I said the same thing every time I sold AMZN

My first vesting event is Nov 1 this year, so I have some time to consider it.

[chasesfish]

I get RSUs, a significant amount.  30% of my compensation is issued in RSUs, most of which I'll walk away from unless I can get a layoff because its a rolling four year vesting.   

Personally, have shares withheld for taxes, transfer the shares to my brokerage account, then stack orders to sell if they go up by a certain amount.   I currently have zero shares of my employer because the stock went up and I took the money.  I don't see a need to hold much when I have $350,000 in "restricted" stock I theoretically participate on the upside with, even though I will never see the money if I retire early.  (Its either golden handcuffs or ransom money, depending on the day).

Our company stock has particularly sucked for 10 years, not finally moving up in value for the last 15 months.  There are way too many employees concentrated in the stock, as I can now see with all the retirements happening now.  If all of them had sold and just invested in the total stock market index, those retirements would have been faster.

[MustacheAndaHalf]

(2) hold onto them for a least a year before selling to avoid short term gains.

Are you sure that's true? 
If you sell right after you receive the stock, won't your gains be zero?  (You might have to wait for an open trading window depending on tech company policy, and could have a gain or loss during that wait)  You will have paid taxes on it, and your cost basis should be the same as the stock you now hold.

[appleshampooid]

(2) hold onto them for a least a year before selling to avoid short term gains.

Are you sure that's true? 
If you sell right after you receive the stock, won't your gains be zero?  (You might have to wait for an open trading window depending on tech company policy, and could have a gain or loss during that wait)  You will have paid taxes on it, and your cost basis should be the same as the stock you now hold.

That is correct. But if OP e.g. waited 6 months and the stock went up, the difference in price would be a short term gain. Maybe they are saying they think the stock will go up, so they're going to wait a minimum of one year.

[chasesfish]

I'm worried the OP is confusing a qualified stock option with restricted stock.  QSOs were the only thing with preferential tax treatment, at least the last time I looked into it. 

[appleshampooid]

I'm worried the OP is confusing a qualified stock option with restricted stock.  QSOs were the only thing with preferential tax treatment, at least the last time I looked into it.

What they described sounded exactly like RSUs to me, but only OP knows for sure.

ESPPs can have favorable stock treatment but you have to keep them a looooong time exposing yourself to the risk of your company stock going down. For my wife's plan, 2 years from grant date (which is 1.5 years from the exercise date in her plan's case, ymmv) is a qualifying disposition.

[ooeei]

Are you sure that's true? 
If you sell right after you receive the stock, won't your gains be zero?  (You might have to wait for an open trading window depending on tech company policy, and could have a gain or loss during that wait)  You will have paid taxes on it, and your cost basis should be the same as the stock you now hold.

This is correct, and many people who receive company stock forget/don't understand it.

You don't pay short term capital gains on the total amount, only on the amount it appreciates after you receive it. If you sell immediately, it will appreciate almost 0, thus your taxes will be almost 0 assuming it's market price. If you receive a discount on the stock that discount amount may be treated as gains, as its value is higher than when you bought it.

My employer gives me a 10% discount on company stock with a limited buying window and quantity per 6 months, the discount applies to the lower of the price at the beginning and end of the 6 month window. I pay gains on the 10% discount, and if the price was lower at the beginning of the 6 months, that additional discount.

Scenario 1: Stock price is $5.00 at month 0 and $10.00 at month 6. I get the stock at the end of month 6 for $4.50/share (10% discount on $5.00). I pay taxes on $5.50 of the proceeds if I sell (difference between current $10.00 price and $4.50 purchase price).

Scenario 2: Stock price is $10.00 at month 0 and $5.00 at month 6. I get the stock at the end of month 6 for $4.50 share (10% discount on $5.00). I pay taxes on $0.50 of the proceeds if I sell (difference between current $5.00 price and $4.50 purchase price).

Our stock has stayed in the same ballpark over 6 months since the plan was implemented a little over a year ago, so it's closer to Scenario 2 as far as taxable gains. I sell immediately. If we have a situation like Scenario 1 I may reconsider, but I don't foresee anything that extreme happening too soon.

What does the community think my best play is here?

If they gave you cash instead, would you buy their stock with it? If not, you should sell and buy what you otherwise would. Your compensation is one phone call/email away from being cash the moment you get it, with little/no tax considerations needing to be considered. The only consideration is if you think their stock is where you should have your money. I would lean towards diversifying.