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Question: How Do I Manage My Company Stock?

Answer: While it’s not a clear-cut answer to the question: it depends! Different situations and different circumstances dictate the best way to manage company stock. For instance, a recent college graduate that accepts a job at a publicly-traded company may begin contributing to a 401k and buying company stock within that account. Often that’s a way that an employee can feel a sense of ownership in their company and start building wealth.

On the other hand, someone that’s worked for their company for 25+ years and has accumulated a large amount of company stock may want to approach that position much differently. At Falcon Wealth Advisors our practice is focused primarily around working with this demographic of people approaching retirement that want to make the transition seamlessly and comfortably. Consequently, we meet with and work with people frequently trying to manage the stock they’ve accumulated.

For this group of people, it can be difficult to imagine investing in anything other than the stock that’s helped them build their assets. However, with fewer years until retirement, a shift in mindset is often necessary.

We generally prefer that no single stock make up more than 20% of someone’s investment portfolio. That doesn’t mean blindly selling most of their company stock though. Doing so can often create serious tax implications that must be taken into consideration and poor timing may be detrimental also.

The first step in properly approaching concentrated stock is to build a financial plan to determine the income a portfolio must provide to generate the income someone needs in retirement to live comfortably.

The next step is to evaluate tax consequences. Our team consists of Chartered Retirement Planning Counselors, a CERTIFIED FINANCIAL PLANNER™, and a Certified Tax Specialist (among others) and we work together closely to help clients with not only financial planning but also tax planning. Upon firming plans up with our client’s accountants, one strategy we’ll look to is selling covered calls.

Selling calls allows the seller to collect income (premiums) that a buyer is willing to pay in exchange for the right to purchase a predetermined number of shares, at a predetermined price, at a predetermined date in the future. In other words, the seller is getting paid to wait & see if the underlying stock hits a predetermined price that they are comfortable selling the stock at. Utilizing this strategy allows us to methodically begin diversifying someone’s company stock with discipline while generating income in the meantime.

The illustration below displays a generic example of this strategy in action and explains the potential outcomes. If you or a colleague or someone you know has built a concentrated position in company stock and would like help understanding how to best manage it, please contact us today. There’s no need to go at it alone.

-Cory Bittner

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Falcon Wealth Advisors is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.