4 Steps to Managing Your Company Stock Allocation - RSU/ISO/NQO/RS

Many investors don't realize their company stock may make up over 50% of their annual income and a significant part of their overall wealth. It can make or break your financial plan.

You may hear success stories of those who become wealthy off their company stock, but there are even more stories you don't hear about significant loses and financial setbacks. It’s in your best interest to do the work and have a plan in place to understand your potential upside and risks, as well as strategies to help improve your probability of success. A few missteps can negatively impact your life's wealth.

"Good fortune is what happens when opportunity meets with planning.” – Thomas Edison

Here are four steps you should take to effectively manage your company stock allocation:

1. Create a financial plan to understand your financial situation: You need to know where you are to plan for where you want to go. First, answer key questions like what is your net worth, investment allocation across all accounts, portfolio risk profile, concentration stock percentage, budget, liquidity needs and tax rates. Then, identify your goals, such as making a large purchase, college planning, financial independence, wealth target or retirement, and access your probability of meeting them.
   

2. Know your risk: Determine the risk to your financial plan if the stock goes to $0 and you lose your job. Someone with a net worth of $5 million may lose $250,000 without a major impact to their plan, while most people cannot. Just because your coworker holds the stock doesn’t mean it’s right for you.
   

3. Analyze and compare your company stock to other investment options: Analyze the stock’s fundamentals, growth potential, insider ownership levels, risks and competitors to determine how it compares to other investment options to optimize your return profile. Your company stock may not be the best investment to meet your goals.
   

4. Manage your tax liability: Avoid tax pitfalls like triggering a large tax bill with a stock sale, being penalized for a tax underpayment or not having the liquidity to cover your liabilities. Estimate tax liabilities to avoid surprises and identify when tax management strategies can help. If you wait until tax filing it's too late. Consider tax loss harvesting and tax advantaged accounts such as 529, 401K, Roth IRA and IRA.

By taking these steps, you can make informed decisions about your financial future.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.

Jesse Waters is a registered representative with and securities and advisory services are offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.