ELLEVEST INSIGHTS

Boy, I wish I’d had a good financial advisor to understand my equity compensation when I was younger.

Sure, I made a lot of the right moves on my own — negotiated it on my hire to significantly increase the offer, renegotiated it every year.

But then I made the absolute classic equity compensation mistake: I held most of it after it vested.

After all, I wanted to be seen as loyal and supportive of the company I worked for. And a lot of the executives who had come before me had made a lot of money by holding onto their stock after it vested; this concentrated bet had worked out for them. And I was in a senior role, so I had an insider’s perspective on all of the good things that were happening at the company.

Mostly, this was classic behavioral finance: I valued something I owned more than I would if I hadn’t owned it. You may have heard of it; it’s called the Endowment Effect. And I thought my position at the company meant I was “smarter” than the market.

(But I sure wasn’t smart enough to see the subprime crisis coming. And that wiped out a lot of the value of my equity.)

Our financial advisors at Ellevest see this all the time: Women who don’t want to sell their equity because they don’t want to be seen as disloyal to their company. Or they don’t want to sell because the stock price is up, so they extrapolate that it will continue to increase. Or they don’t want to sell because the stock is down, so they don’t want to miss the rebound. And, of course, they don't want to sell because they don’t want to pay taxes.

Looking back, I now know that my biases ultimately sabotaged my chance to have the best possible outcome for me, my goals, and my values. And isn’t having the best possible outcome with your equity something women really do want?

To help you move from “no’s,” “not nows,” and “don’t wants” to feeling certain you’re going after what you want, here’s advice from our team of financial experts on what to do with your equity compensation that I wish I had received:

• Build your advisory bench. Put together a financial team who can help you cover all your bases and identify blindspots along the way (like me thinking “I was ‘smarter’ than the market.”) A financial advisor can invest your assets and provide clarity and confidence about where you’re going. You’ll need two other key players: an accountant to help you get in line with tax laws, and an estate attorney to draw up legal estate planning documents to preserve your wealth during your life and for your legacy. An Ellevest financial advisor can act as the point-person — she’ll coordinate with your accountant and estate attorney so they’re all on the same page (including you).

• Understand the implications of a concentrated stock position. If you haven’t sold at least some of your shares after your stock is vested, you might find yourself with what’s called a concentrated stock position. This means a significant amount of your net worth is tied up in a single company’s equity. (At Ellevest, we’d say you have a concentrated stock position if you have more than 10% of your total investment portfolio in a single stock or company.) The challenge with this is that you’re tied to the ups and downs of a single company, which poses a big risk even if that company is hot right now. At Ellevest, we actively manage your shares and focus on diversifying your portfolio for what we think will be most likely to help you hit your goals — and free up funds to intentionally invest in causes and companies that have a positive impact.
  
  
• Use losses to your advantage. You should also aim to diversify your concentrated stock in the most tax-efficient way. One strategy to consider is tax loss harvesting to defer taxes — or greatly minimize them down the road. Using this tactic, a financial advisor can help you offset your expected realized gains, or capital gains from selling some of your concentrated stock, by identifying taxable investments with potential unrealized losses (meaning they’re currently worth less than you paid for them).

• Gift your gains. Another tax-efficient strategy could be to create a donor-advised fund, a philanthropic gifting vehicle that lets you donate stock, get an immediate (same-year) tax benefit, and then make grants to charitable organizations from that account over time. In gifting your stock to a donor-advised fund or a charitable organization directly, you’re effectively gifting your stock’s gains.

• Map out a financial plan. More wealth means you can work smarter to hit current goals faster or take giant leaps toward new goals — say, having an income-replacement strategy or planning for early retirement. But to take those goals off your vision board and into the real world, you need a financial plan. It’s what’ll give you the clarity and confidence that your long-term sale plan for your stock is aligned with your needs, values, and goals.

Equity compensation is complicated. And so is knowing what moves are the right ones to make with it. The decision to hold or sell could be the difference that makes your future play out the way you want it to — or not. That’s why I want you to feel more comfortable negotiating through this area than I was.

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