I recently met a with a product manager in her mid-30s who had just transitioned from Amazon to Google.
Her new base salary at Google jumped to $250k+ and with this bump she wanted to focus on building out a better financial plan for the future.
**Income bumps are always a good time to evaluate your financial plan! 💭
When she met with us and learned that my team and I have a wealth of experience in working with young professionals 👩💻 at these "types" of companies (Google, Amazon, Facebook, & Apple) she was ready to dive in.
Here was the checklist of things she wanted to address with a professional:
Generally speaking, she wanted to make sure she was getting started on the right path at her new job... This is a common reason new clients seek out our Financial Life Plan process.
On our first planning call she brought up some advice another advisor had given her previously at another firm. They told her to sell her vested stock (approximately $60k worth) in Amazon to "diversify" into other investment portfolios (managed by them of course!)
She must have seen my face, because she paused and asked, "You don’t agree?" 🤔
I began to consider the way we think about company equity as it relates to risk, diversification, and growth potential.
Short version: In my opinion, this client was in the ideal situation to take some long-term risks by continuing to hold company equity. 👍
How did I come to that conclusion?
In other words, in my opinion, she's exactly the type of person that could usually afford to take some long-term risk with company equity in a way that won't negatively affect her other financial goals!
An extra 15-20 shares of stock are a huge opportunity for someone at the start of their journey to capitalize on.
Selling it “just” to “sell” didn’t sit right with me.
The recommendation wasn't "bad" by itself, but it struck me as though was made without having a full understanding of this person's complete financial picture and future goals.
Now don’t get me wrong...as a general rule of thumb, I would agree with a strategy that a client should not hold more than 15-20% of their net worth in any one company’s stock.
But we also need to look at each individual’s specific situation!
For example, if we were advising a 50-year-old client who was looking to retire in 3 years, and still needs to fund their kid's college then yes, absolutely, I would advise that client that stock holding rule should be ironclad!
But again, that is a totally different position than someone who is a HENRY, High Earner, Not Rich Yet.
For a lot of our clients at the start of their careers, in their mid-30’s, and who are being highly compensated in company stock, it’s almost a given that this company stock will be a higher percentage of their net worth. While nothing can reliably predict future performance, many of these individuals are situated at the bottom of the accumulation stage and are continuously ramping up their net worth.
A 35-year-old that has established themselves in the tech space, 👩💻 is already at a product manager level, and will most likely continue to be granted new company stock in the future doesn’t need to prematurely get under that threshold...It will happen over time. And so there are times for these sort of HENRY’s when we may actually recommend them to keep a relatively higher percentage of their investments in their vested stock.
Furthermore, while we never want to prognosticate on future company’s performance, we also have to be honest with ourselves about the company that we have the stock in.
Holding onto company stock in established behemoths like Google/Amazon/Facebook/Apple is not the same thing as taking a chance on your company that IPO’d 6 months ago and we’re not sure if they’ll exist 3 years from now.
Quite honestly, in my view, this advisor likely made a cookie cutter recommendation (sell half of the stock to diversify because... what if?) without thinking about the next 5 years, the client’s situation, or the type of RSU’s being granted.
We always want to base these RSU decisions around your personal situation. And that is why we designed our Financial Life Plan process. It addresses your life and we seek to answer every question and decision that needs to be carefully considered before making major changes to your financial world. 🌎
For Educational Purposes Only – This does not constitute a recommendation. Investing involves risk including loss of value, and diversification cannot assure a profit or protect against loss in a down market. Results may vary.
Registered Representative & Securities & Investment Advisory Services offered through Hornor, Townsend and Kent, LLC. Registered Investment Advisor Member FINRA/SIPC (212) 697-1355. Drucker Wealth Management and other listed entities are Independent of HTK. Investing involves risk, including loss of value. 3642912RB_Jun23