Senior Wealth Advisor, Aaron Szager, CFP®, explains important considerations in managing a concentrated stock position.
There is an undeniable creation of new wealth in the Silicon Valley area. Much of this wealth stems from employees and founders in the high-tech industry receiving company stock as a component of overall compensation. In the case of start-up companies, the stock component may be up to 100% of compensation. With the stock market on a steady rise since the recession of 2008-2009, employees given grants of Restricted Stock Units (“RSU’s”), Stock Options, or enrollment in Employee Stock Purchase Plans (“ESPP”) in years past may have their company stock making up a significant portion of overall net worth. Concentrated stock positions are the norm in this area and pose both a substantial risk and opportunity; factors which are quite fitting for Silicon Valley. Also, with a younger working demographic, many tech employees do not remember the “good ‘ol days” of the 90’s, and the subsequent collapse of the tech industry in the early 2000’s. In fact, 3 of Fortune Magazine’s top 10 most admired companies of 2000 (Lucent, Cisco, and Intel) lost 98%, 86%, and 79% respectively of their stock value in the following 2 years (source: Fortune Magazine). So, with the enviable situation of having too much of a good stock, the question is what to do: sell, hold, or hedge?