Dan and I are headed down to Carmel for the weekend. We're cruising down Route 1, windows down, the brisk Pacific air flows in. The car feels hot and stifling, however, as our intense argument continues.
We're both CMU SCS '14 grads. We both joined big companies upon graduation. And we both get our first stock grants in September, after our one year cliff.
We're debating what to do with the stock. Dan tells me that he plans to hold on to his Facebook shares. He's going to sit on the nest egg while it grows and matures. He'll slowly nourish it with solid technical contributions until it turns to a small fortune. Facebook, he says, is valued at a small fraction of what it will be in 5 years.
And this may be true. It may also be true that Google's (or should I say Alphabet's) value will only increase as the company dominates new fields. But that's irrelevant.
If you receive a stock grant from your publicly traded company, you should sell it. Immediately.
Why, you ask? One word: risk.
Imagine that tomorrow the Department of Justice files an antitrust lawsuit against Google. The company is forced to split off into a dozen shards. My entire department is eliminated to cut costs, and I'm without a job. My life savings, held in large part in Google stock, pretty much disappears. The tech sector is in a recession, so I can't find a new job that pays enough to cover rent. My nest egg, my safety blanket, is gone.
By investing money in the company you work for, you're putting all of your eggs in one basket. One data breach, one SEC filing, one natural disaster, and you could have the rug pulled out from under you.
Now you might think of the stock grants as "fun money" that you don't really need to think about --a gift from your company. You're free to manage it how you want, and because you're a busy person you might as well just keep sitting on this growing gift, right? No! This is terrible logic! Your stock grant is laid out in your offer letter. It's part of your contractual compensation. And, in many cases, it's a significant portion of your income. You should think of the grant as cash compensation. If you decide to not sell the stock immediately, this is equivalent to taking out a portion of your paycheck to buy stock in your company.
You might also think that your company has some awesome stuff in store, or that everyone working there is a genius. And that's great. That's why you work there. But there are a myriad of reasons why you shouldn't invest in the company based on this logic:
(a) You're probably drinking a bit of the Kool-Aid.
(b) Your trading is restricted due to insider trading rules.
(c) Most important of all: You are exposing yourself to too much risk.
And what about taxes? Did you hear that you should keep the stock for a year to avoid short term capital gains? Well as it turns out, RSUs are taxed as income when they first vest. After that, any *gains* (or losses) are taxed as short term or long term gains depending on how long you hold onto the stock for. So if you sell immediately, you pay no capital gains. Note that this is NOT true of stock options, or any other weird financial vehicles your company pays you in (mortgage backed securities, anyone?).
So what should you do? Well first, sell the stock. As quickly as you possibly can. Then find some stock or mutual funds that are not correlated with the performance of your company, and put the money in there instead. Preferably in a tax sheltered account like your 401(k). If you don't care much about this financial markets bullshit, just dump it in the S&P 500, a large index fund that roughly tracks the performance of the stock market overall.
I'm writing this post because many of my Class of '14 friends are about to receive their first stock grants. My advice: Sell! Sell! Sell!