Most sensible stock vesting approach
Each year, I’m allocated stock in my publicly-listed MF employer which vests evenly over 3 years. What is the logical way of approaching this, assuming that one doesn’t need the money? My thoughts are either:
- Don’t ever sell any stock in the hope that your stock earns at least market-average returns over the long run; or
- Sell all stock as soon as you get the chance to reduce your exposure to your employer (Lehman alumni may be biased towards this); or
- A combination of the above, perhaps guided by the price at which you were allocated (humans typically avoid losses as far as possible).
Thoughts?
Sell all stock and diversify into the market. You're already very levered to your employer in terms of salary/future bonuses, and presumably you always have a chunk of unvested stock.
I would be uncomfortable having single-stock exposure of greater than 5-10%. You don't even need a spectacular Lehman failure... GE would be another example, lots of value destroyed there for anyone who sat on a single name while markets ripped
I understand your point of view. Devil’s advocate would say that you should be able to take a view on your employer, and if you think that a lot more growth is to come, you should put your money where your mouth is.
Conversely, if you work at Blackstone/KKR/Apollo/Ares/etc, and their stock has tanked over the past year, and especially so YTD, devil’s advocate would say you should hold on since the bad news can’t continue forever. Thoughts?
Perhaps, but stocks are priced very efficiently. Might take a long while for them to get back to where they were to end 2024.
Case in point, they're down another 5% today, that's a lot of vol to take a high % of your net worth into. If you had the money today as a free-and-clear bonus payment, would you invest it into your own stock or S&P?
It's personal preference, I keep like 5% of my vested holdings solely to avoid FOMO if the stock becomes the next NVIDIA, but I think holding massive %s in ANY single name is a big risk.
Good point. No chance I would buy a single stock in any of these names right now.
So if you were allocated stock and after 1 year it is down x%, would you be happy to sell it at a loss? That would definitely be painful, no?
Agreed on concentration though, definitely don't want to be over-exposed to my employer.
Some years it'll vest at a huge gain and some years at a loss. In either scenario, your money is statistically better off in an index fund so get it there ASAP.
My advice is just sell on day 1 of it vesting and do not pay much mind to what the price is.
Very responsible & rational. Thank you for your thoughts! Anyone else?
Do MFs not pay all Assoc level bonuses in cash? Is part of it always stock?
Sadly not… but perhaps more Associate 2 & beyond.
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