Are RSUs Stagnating Your Portfolio Potential?


One question that executives and employees frequently pose during the portfolio planning process is related to RSU shares: Should I leave my RSU shares as they are, or is now the right time to sell? They may also ask whether it’s wise for anyone to sell off financial assets while the market is down. As with most questions about financial planning, the answer depends on several factors.

A glimpse of the Current Bear Market

As of September 22, 2022, the stock market is noticeably down for the year. The S&P 500, Dow Jones Industrial, and NASDAQ are near the bottom of their 52-week range. However, there are still opportunities for growth in the stock market. In fact, some experts predict markets will see a boost in late 2022 and early 2023.

Maximize Your Opportunities Through Diversification

Investors who already have well-diversified portfolios and are willing to take on more risk may enjoy significant growth following the current downturn. Those whose portfolios lack balance, however, are at greater risk and may find it more difficult to limit and recover losses. Whether and to what extent your portfolio is tilted toward equity in your company is among the most important factors to consider when deciding what to do with your vested RSUs.

Ask Yourself These Questions When Deciding Whether to Sell

Financial planning is never a one-size-fits-all solution, as decisions must be based on each client’s individual circumstances. To set yourself up for success, you first need to understand where you are now, where you want to be, and how quickly you plan to get there. Here are a few questions that can help you decide what to do with your RSUs:

Do Vested RSUs Make Up a Large Portion of Your Portfolio?

Diversification is a key element of any successful investment strategy. By spreading your investments across different asset classes, you provide yourself some protection from the risks of sector concentration and reduce your overall volatility. If you have a high percentage of your net worth invested in RSUs, then you may be unnecessarily exposed to individual stock fluctuations. Selling some of your vested RSUs and reinvesting the proceeds in other asset classes can help you to achieve a more balanced portfolio. In addition, rebalancing your portfolio periodically will ensure that your asset allocation remains aligned with your long-term investment goals.

If you plan to stay with your current company and you have a large dollar value in RSUs, selling a portion of your vested RSU shares will reduce your potential loss in the event the company experiences unforeseen hardship. Keep in mind that a financial downturn for your company would put both your paycheck and the value of your RSUs at risk. Therefore, under the right circumstances, selling a portion of your vested RSUs can minimize risk and protect your overall financial well-being.

Although it can be difficult to sell stock when the price is down, it is important to understand that in a bear market, other stocks are down as well. This presents an opportunity to buy into other market sectors at a lower price. Acting now could help you to weather the current market downturn and set yourself up for success in the future.

Does Your Company's Outlook Change Investment Strategies?

When determining whether to sell your RSUs or hold onto them, it is important to analyze both the market conditions and your company's outlook. If the selling price is lower by about the same percentage as the index averages, it is likely that the decline is due to general market conditions. However, if the stock price is down more than the index averages, there may be problems specific to the company or industry.

On the other hand, the market may have a less favorable view of your company's product offering or staying power than that of its competitors. In this case, it may be advisable to sell some of your shares sooner and invest the proceeds in safer opportunities and create more diversity in your portfolio. By taking both market conditions and company circumstances into account, you can make a more informed decision about when to sell your RSUs.

Do You Need the Money Right Now?

If you're planning to make a major purchase soon with cash from your RSUs, then it's important to get that money into a safe account. It would be prudent to sell enough RSU shares for the purchase and park the cash in a money market fund, one or more high-yield savings accounts, or possibly even a short-term bond or CD. Short-term interest rates have been rising this year, and as a result, money market funds  and high-yield savings accounts are starting to pay interest again in the 2% range. This is a much better option than leaving the cash in your brokerage account, where it could be subject to market volatility. So, if you're looking to purchase something big in the near future, be sure to get your money into a safe account beforehand.

Does Your Company Offer More Than One Type of Equity Compensation?

When your employer offers other forms of equity compensation outside RSUs, such as ISOs, NSOs, or RSAs, devising an optimal strategy to minimize taxes while maximizing portfolio growth is a complex task. Work with a professional tax and investment advisor who has the expertise necessary to facilitate tax loss harvesting and other important tax planning strategies.

When the market is uncertain, it’s especially important to take a disciplined approach to invest. WRP provides complete wealth management services with a focus on serving pre-and post-IPO employees. For more insight and tips, subscribe to our blog or browse our free resource library.