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Investment Planning |
Diversification
What percentage of your assets is held in stock of your company? Would you buy that much of the stock today? Are you willing to gamble your financial goals by continuing to hold onto this one stock?
If you have more than 5 to 10% of your net worth in company stock, sell enough to get you down to this range and add the proceeds to your diversified portfolio. We recommend no more than 5 to 10% of your portfolio be held in the form of stock and vested options and equity (such as restricted stock) in the company you work for. You're already relying on your company for salary, health insurance, 401(k) contributions, future equity awards, and stock option vesting. If you are no longer working for the company whose stock you own a large chunk of, you're further removed from information about the company's performance and should diversify immediately.
Some people cite nostalgia, taxes, and possible corporate growth as reasons to hold company stock. You can fulfill the nostalgia goal by retaining a token minimal number of shares—or in the extreme, you can frame one physical share certificate. Your goal of minimizing taxes will be satisfied if you sell prior to 2013, when tax rates are set to rise. On capital gains, the tax rate in 2013 will rise from 15% to 20%. On income from salaries and restricted stock vesting, all tax brackets will see a sharp tax rate spike, with the top tax bracket rising from 35% to 39.6%. If you have a savvy investment advisor, you may have realized capital losses from the recent market decline that you can use to offset capital gains on the sale of your company stock.
Investing in a diversified portfolio is an excellent and less risky way to achieve your goals than owning one stock.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.