Are you starting to view your accumulated stock as overwhelmingly large? If you’ve accumulated enough to begin worrying about whether you’re managing it properly, you have two very different conflicting thoughts about your investment.
One thought might be that your stock is a source of great potential. You’ve seen the good going on at your company, and in the past your stock might’ve grown significantly. If you hang onto it, perhaps it will reach new highs and break your previous record.
The other thought might be that the dollar amount of stock you own is very significant to you. You’ve never had this much value before, and you know if it were to fall by 20% or 30%, you might have massive regret holding on for so long. You probably haven’t felt this way when the dollar amount was lower, but now it’s time to do something.
Below is some context for how you can understand your feelings toward company stock, and the risks associated with owning too much.
How to understand the financial risk of too much company stock
Write down all the major resources you have:
- Cash balances – Write one number, the total value in your checking and savings accounts.
- Investments – Write the amount you’ve invested in your portfolio that is not company stock
- Properties – Write the value of your home and other properties
- Company Stock – Write how much you have
Look at the numbers in relation to each other. How do they make you feel?
Now, look at how the numbers relate to your company stock. Are you confident that it’s providing this level of support for your family? Or are you scared to have that much invested in one place? People who work with a financial advisor try to adjust themselves to be somewhere in between, which is the same balance you want to find for your financial health and confidence.
How much company stock would you need to shift into your broader portfolio to be confident with your risk level?
Make a note of that figure. That’s the amount of stock that is right from an emotional level. Now, look at this from a numbers perspective and put aside your feelings for a moment.
How many people work at your company? It’s likely there are hundreds, thousands, or tens of thousands, including a board of directors and CEO, and though these positions change with time, they’re all people.
What are the odds those people could make a mistake so big it could impede your company’s growth?
With multiple people making countless decisions every day, it’s inevitable. A single board of directors can make a major mistake very easily, and it happens all the time. So regardless of how large your company is or who your CEO is, you shouldn’t have most of your money connected to their stock—or any stock for that matter.
Your income is already tied to this one company, and now a certain percentage of your wealth is also tied. Most people don’t expect anything drastic to happen to their stock, but there are very real consequences if something goes wrong.
Now, you have vested and unvested stock. Your vested stock might already be too large, and you might want to sell to lighten your load and take some profit. However, your unvested stock is exposure you can’t reduce until it vests, so you will never be at zero company stock as long as you work there and continue to receive awards.
Don’t forget your responsibilities to yourself and your family
To manage your investments well, begin a process to manage your company stock and transfer funds into your long-term portfolio. Processing the right information will lead to the right decisions, and solidify your financial life.
Now that you understand the financial risk of owning too much company stock, are you ready to make changes?