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You’ve got a truck load of company options or RSU’s. Now what?

You’ve got a truck load of company options or RSU’s. Now what? 1024 684 Fox & Hare

We all appreciate when our boss acknowledges that we’ve gone above and beyond at the office. Working hard and hitting our KPIs is something that should be rewarded, right? And for many of us, that can mean bonuses when tax time rolls around. Another common alternative to the traditional periodic bonus, is the chance to take part in an employee share scheme.  

This scheme is a common way for companies to motivate high-performers by offering shares as a lucrative reward for good results. But it’s also a way for companies to lock employees into a job.  

Think about it like this: your performance has an impact on the profitability and results of the company, which also impacts the value of its shares (which you are now personally invested in). The idea is offering a financial piece of pie will incentivise you to work harder to increase the value of the business.  

For many who take up the scheme, this is their first serious step into investing. And this isn’t a small amount of money we’re talking about. For those who’ve been with a company for a number of years, these shares can amount to hundreds of thousands of dollars.  

But going into a scheme like this with zero stock market knowledge (and not managing your shares proactively) can tie up your wealth with one company and reduce your chances of meeting your long-term financial goals. And with thousands of your dollars at stake, taking a backseat and doing nothing when in an employee shares scheme can leave you with less than you started with.   

Too often, we see our members unsure how to navigate restricted stock units (RSUs) and how to connect this wealth to their overall financial goals. It’s the part of their portfolio they don’t understand or haven’t taken the time to factor into their big picture plan. So, is doing nothing a feasible option? And if not, what should we be doing instead? Let’s dive into 3 of the most common challenges our members face in employee share schemes and how we can help you take control of this wealth. 

 Challenge 1: Unsure how to align this wealth with your goals  

Being offered a share in your company is a pretty flattering prospect. In most cases, our members opt into a scheme like this and don’t ask many questions. Shares take care of themselves, right?  

But how does this extra pot of wealth impact on your broader financial horizons? This is a stumbling block many of our members face. Suddenly they’re lumped with huge sums of money and unsure how this can help them towards their long-term goals of buying a home or generating a passive income.  

It all comes back to education. When we’re not educated about the stock market or how our shares can help us create wealth, we feel stuck and put the idea into the ‘too hard’ basket. But when managed correctly, these shares can be a powerful player in your investment portfolio and help you unlock the financial freedom and flexibility you’re working towards.  

The key is to get clued up on how this wealth works and start proactively aligning these funds with your long-term goals. Remember: doing nothing prevents you from capitalising on this investment opportunity (which could help you save for your first home or reach early retirement sooner).  

 Challenge 2: Lack of diversification

Let’s call out the obvious before we start: all investment options come with a level of risk. Unless you’re stashing cash under your mattress (not something we’d recommend), investing your money in shares, property or bonds carries a level of risk.   

What makes RSUs particularly risky is the distinct lack of diversification in this investment option. Essentially, your wealth is dictated by the value of one company’s performance. There are no other assets shielding your portfolio from market up and downs, leaving you more vulnerable to losses that can impact your long-term financial goals.   

When we work with our members to create investment strategies, diversification is at the top of our list. Why? Because a diverse portfolio of assets spread across a broad range of industries fosters financial resilience (a.k.a. safeguards your wealth from the ups and downs of the market). The value of individual stocks will fluctuate over time and a diversified portfolio helps lessen the blows of any major downturns or market slumps.  

And for those who haven’t paid attention or actively managed their RSUs over the years, they might be holding onto them long after they should have been sold. Essentially, this heightens the risk of losses. Remember the saying, ‘don’t put all your eggs in one basket?’ That’s exactly what we’re talking about. 

Challenge 3: Tax implications 

Tax isn’t a hot topic of conversation, but we need to tackle it. Because if you take anything from this article, make it this: RSUs require active tax management, meaning you are responsible for paying the tax bill. And no, avoiding the tax man isn’t a smart option.  

RSUs have a vesting period (usually a specified number of years), which means you have to wait out this period before being able to take ownership to sell these shares. Along the way, you might be able to gain access to a certain portion of the full amount. For example, say you receive $100k worth of RSUs, with a vesting period of 3 years. After 1 year, you can access 33% of the total amount, then another 33% the following year and finally the full amount after year 3. And if you leave the company before this period is up, you forego the remainder of your shares.   

It’s important to note that you do have to wait until your RSU’s vest and become shares before you can sell them. But that doesn’t mean you can’t start planning how you’re going to navigate the tax implications of this investment! Because you have the vesting schedule from the beginning, we can help you work out roughly what your tax bill is going to be. This proactive approach means we can plan to potentially sell some of the resulting shares to cover the costs of tax or ensure you have accumulated enough cash to meet the tax bill.  

Plus, when you do sell the resulting shares, you’re also liable for the capital gains tax. But with proactive management you can receive a 50% discount on capital gains as well as offset your capital losses with gains made from your investments.  

Moving forward, if you were to cash in a portion of these vested shares, we would then help you invest in a more tax effective manner.

We are here for you!

When it comes to RSUs, feeling confused and uncertain is all too common. Many of our members come to us with the same problems and questions, unsure how to be using this wealth to their advantage. We understand that the process can seem complicated and overwhelming, but you don’t need to go it alone. We work with members just like you who are struggling to get a handle on this newfound wealth.  

We can help you understand what these shares mean for your wealth and how to make this investment a powerful way to help you reach your long-term goals. Because the last thing we’d want is for inaction to cause you to miss out on what’s most important to you. Get in touch with us and let’s chat about how we can make your RSUs work as hard as you do.