On this week's episode, we're going to talk about some important things everyone with equity compensation should be doing, at least in my humble opinion. I've titled the episode, the biggest mistakes to avoid because negative titles get more clicks, however, I don't like the negative approach. The approach I will be taking as I move through these items is to focus on the most important things you should be doing if you have equity compensation and want to be successful with it.
Before we jump into things, I want to remind you that I cater to employees with equity compensation who also work for publicly traded companies. My focus is on RSUs, stock options, restricted stock, and ESPPs. I do not work with startups or things like IPOs. It's not my area of knowledge so if you're looking for an advisor who works in that area, well, I'm simply not that guy. Let's get to it.
You will want to hear this episode if you are interested in...
Getting paid when you’re in the money!
The first important thing you should do to be successful with your equity compensation is an easy one. At least it's easy to explain. Make sure that you NEVER let in the money stock options expire without exercising them. In the money simply means the value has gone up since they were awarded to you. They now have value and are worth actual money to you. This is why some of my clients call them, show me the money options.
Regardless, if they've gone up in value and are now in the money, be sure to exercise them so you have full ownership of these profitable shares. It just boggles my mind that 11% of in the money options are never exercised. I get it, most stock options have a 10 year time period for you to exercise them and time can cause you to forget about them. Be sure to pay attention to time periods and if the stock is now from its starting point so you don’t lose out!
Developing a plan
If you want to be successful with your equity compensation, maybe this is the most important point. It's definitely in the top three. Ultimately, you need to develop a plan, whether that is by yourself or with the help of a professional. All of the items I’ve mentioned in this episode should be in that plan. Things like tracking your stock options, staying under your concentration risk number, planning effectively around your tax situation so you're not tipping Uncle Sam, and not losing sight of the big picture. You also want to make sure that you understand things like what happens if you leave your job or the company gets acquired. Understanding the rules of equity compensation documents should be part of your plan. Now seems like a good time for the old expression of “failing to plan is planning to fail.”
This week’s FLASHBACK: Hiking Trails - Chuckery Trail
There is currently a whiteout outside of my office but it is officially Spring here in Akron. Welcome to Northeast Ohio at the end of March, but the weather is typically good enough to get out on the local trails. My favorite trail in the area is the Chuckery Trail. It’s 2.4 miles and it has a little bit of a climb. It starts off with the Signal Tree, if you haven't seen the Signal Tree, you need to visit this trail just to see it. It's a unique tree that was used as a marker by the Native Americans who used to live and travel through the area. The trail starts and finishes along the Cuyahoga River. It never seems too crowded and doesn't stay too wet. Depending on when you visit, you may even get to see some Cricket games going on at the nearby ball field.
Resources & People Mentioned
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.