How Worried Should You Be About Your Restricted Stock Units?
Making decisions about your restricted stock units (RSUs) can feel overwhelming, especially when markets are volatile or the stock price is down. There is no single right answer for everyone because the best choice depends on your personal financial situation and goals. Before you decide whether to hold or sell, ask a few key questions about timing, risk, and diversification. Thinking through these factors can guide you toward a strategy that helps protect your wealth.
When Do You Need the Money?
If you plan to buy a new home or make another major purchase soon with cash from your RSUs, get that money in a safe place. Sell enough RSU shares for the purchase and park the cash in a money market fund, one or more high-yield savings accounts, or possibly even in short-term Treasury Inflation Protected Securities (TIPS). Short-term interest rates can fluctuate over time, so compare the yields on money market funds and high-yield savings accounts to get the highest rate currently available.
What Portion of Your Net Worth Do the Shares Represent?
If your RSUs represent a high percentage of your net worth, say 50% or more, strongly consider selling some of your holdings right away to begin diversifying, regardless of the current stock price and market conditions. Yes, if the stock price is down, you may hesitate to sell. But the rest of the stock market may be down too, which can allow you to buy in at a good time. Moving into a fully diversified investment portfolio will help you more reliably meet your financial goals. Reworking your investments during a market downturn can also position you for the next recovery, possibly at a lower tax cost.
How Much Value in Unvested RSUs Do You Have?
If you still have a large amount of unvested RSUs, and you plan to stay with the company, then selling your currently held RSU shares (i.e., your already vested RSUs) can make sense. Selling the vested shares helps reduce your risk of loss if the company stumbles. Keep in mind that both your paycheck and RSUs are at risk if the company faces unforeseen hardship, which means you may have too much exposure to one company. With a large amount of unvested RSUs, you still have plenty of opportunity for gain if the stock price recovers.
How’s the Company Doing?
Is the stock price down because stock markets in general are down? Or is something specific going on at the company or with its products or services that is causing investors to lose confidence? If the stock price is lower by about the same amount as the major indices such as the S&P 500, NASDAQ, and Russell 3000, then the decline may be in sympathy with overall markets.
You may want to hold out for a higher price and sell when the stock market recovers. However, if the price is down more than the index averages, there may be problems specific to the company or industry. If that’s the case, consider selling your shares sooner and moving your money into a safer, diversified investment portfolio.
Over the long term, we expect the value of a diversified portfolio of stocks to grow on average. However, we can’t say the same thing about a single company. Because it’s difficult, if not impossible, to forecast the performance of an individual stock, our standing recommendation, whether the market is up or down, is to sell RSUs as they vest and direct those funds either to planned purchases or to a diversified investment portfolio. If you have been holding them and are considering continuing to do so, a thoughtful evaluation of your own financial circumstances can help determine the best path forward.
Savant Wealth Management provides comprehensive wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you want help properly managing your RSUs and using them to build wealth, schedule a complimentary consultation.
Bruce R. Barton
Managing Partner / Financial Advisor
CFP®, CFA®, MBA