When is the right time to sell my company stock?
Are you sitting on a pile of company stock, wondering if now is the right time to sell? It’s a common dilemma. Let’s dive into some key points that can help you make an informed decision.
1. Understanding Overconcentration Risk
Imagine most of your financial eggs are in one basket—your company stock. While confidence in your workplace is essential, having too much wealth tied up in one place can be risky. Diversification reduces risk and shields your wealth from market volatility.
2. Knowing When Enough is Enough
Ask yourself:
- How much of my net worth is in company stock? Keeping it below 10-15% of your overall portfolio can be a good rule of thumb.
- What’s my risk tolerance? If the thought of a significant stock decline makes you uneasy, it might be time to sell some shares.
3. Securing Your Future
Selling company stock can help secure your future by allowing you to:
- Diversify your investments: Spread your money across different assets—such as real estate, mutual funds, bonds, and other stocks—to balance risk and reward.
- Build an emergency fund: Having cash for unexpected expenses is crucial.
- Plan for major life events: Whether it’s buying a home, funding education, or retirement planning, liquid assets provide flexibility.
4. Timing the Market vs. Time in the Market
Rather than trying to predict market movements, focus on consistent investing and diversification. If your company stock has appreciated significantly, consider locking in gains and reinvesting elsewhere.
5. Clever Strategies
Explore these options:
- Exchange Funds: An exchange fund can allow you to diversify tax-efficiently. You contribute your appreciated stock to the fund and receive shares in a diversified portfolio, avoiding immediate capital gains taxes.
- Donor-Advised Funds: Donate appreciated stock for tax deductions while avoiding capital gains taxes.
6. Consider the Tax Implications
Understand capital gains tax. Consult a tax advisor to assess how selling will impact your tax situation.
7. Making a Plan
- Set clear goals: Determine what you want to achieve by selling your stock.
- Consult a financial advisor: Create a strategy aligned with your goals and risk tolerance.
- Gradually diversify: Sell a portion over time can help to minimize market impact and tax liabilities.
The Bottom Line
Selling your company stock is significant. Thoughtful planning can help ensure you make the right move. Remember, personalized advice from a financial professional can make all the difference.
Any opinions are those of Mark Vivian and not necessarily those Raymond James Financial Services, Inc., or of Raymond James. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.
Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.