The Equity Compensation Guidebook

This episode is based on a LinkedIn post I saw recently from an owner of the Savannah Bananas. If you're not familiar, they are a baseball team in Savannah, Georgia. A husband and wife bought the team a handful of years ago, and they were basically broke. They focused on a different experience for fans, which quickly resonated and turned things around dramatically. 

The Bananas play in a former minor league baseball stadium that seats around 4,000 people. Every game is sold out and they have a 6,000 person waiting list for season tickets. This is a team that is made up of college players. It is not a minor league affiliate or tied to a professional team. And it's all in a town with a population of roughly 140,000 people. 

The post caught my attention because Jesse, an owner, mentioned things they don't have. Items like electric scoreboards, ads all across the outfield, $6 hot dogs, and $5 water bottles. It was just him talking about how they are different and I can relate to being different. I don't know any other purely flat fee CFPs in Ohio besides me and that makes my practice rather unique so I thought it would share how I, like the Bananas, provide a different experience.

• The Savannah Bananas [0:33]
• The things I’m not [2:33]
• This week’s FLASHBACK [7:25] 

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In today's episode, I'll go into a bit more detail on one of the more popular podcasts I have recorded to date. The topic is concentration risk. I've already covered what concentrated risk is in a previous episode so we will talk about some specific strategies to reduce your risk. 

Concentration risk tends to happen slowly over time. It’s the amount of risk you take by investing in one—or a couple of similar positions. I'm not going to go into a more complex definition of concentration risk as honestly, I don't think anyone cares. Instead, I'm going to ask you my favorite concentrated risk-related question. If you were not a current employee of this company, how much of their stock would you own in your own portfolio?

• What is concentration risk? [0:46]
• How much of their stock would you own if you didn’t work there? [1:16]
• Looking at the forest [4:14]
• Looking at the trees [5:55]
• The percentage of holdings in your one concentrated position [8:44]
• Rebalancing [9:39]
• This week’s FLASHBACK [11:51] 

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In this episode, we are going to deal with one simple question. If your company offers you non-qualified stock options, should you accept them? The answer...YES! A big fat resounding, yes! Now if I stop here, this will be the shortest episode I've ever done. Honestly, you could stop here, but I need to provide some data to back this position up. Some of this will be a repeat from other episodes, but it is too important not to cover. 

• Participating in your company’s success [2:04]
• No taxes if you don’t exercise [3:23]
• Time periods to remember [4:53]
• Paying for options [6:23]
• No risk, all reward [9:26]
• This week’s FLASHBACK [13:08] 

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In today's episode, I'm once again going off-topic from equity compensation. It’s my podcast… I’ll do what I want 😂. I thought I would hit on a topic I'm aware of from seeing it with my own clients and clients of other advisors I know. The short version is I want to share some thoughts on some of the biggest retirement mistakes I've seen in my years. This will not be things like not starting your savings early enough or choosing the wrong social security start date. Nope. These are mostly more qualitative mistakes and something I've learned from watching my clients and talking to other advisors is to make sure your retirement is your own!

• Retirement doesn’t mean your brain can take off for the rest of your life! [1:12]
• Retirement doesn’t mean your life revolves around your kids or grandkids! [3:16]
• You don’t—and shouldn’t—wait for retirement to START enjoying your life! [5:28]
• Retirement on YOUR terms [7:46]
• This week’s FLASHBACK [10:26] 

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In the last episode, the focus was on restricted stock and restricted stock units. The focus in this episode is on non-qualified stock options. Part of the reason I feel this topic is so important is that it deals with specific strategies you can use to help you optimize your non-qualified stock options. Personally, I love NSOs because there is no risk to you until you exercise the option. I won't go too far into the weeds as you can go back to episode 20 where I get into the nitty-gritty details. There is no risk because you do not own the NSOs until the point you exercise them so no taxes until then either. If the actual stock price is lower than the strike price at the time you are to exercise the option, you simply do not exercise them as it would be cheaper for you to buy them on the open stock market. Today I'll cover three specific strategies to exercise your NSOs but the best strategy is the one personalized to your individual situation. So be sure to talk to your CFP to make the best decision for you. 

• The time-based strategy [2:51]
• Price based strategy [5:13]
• Tax based strategy [6:21]
• This week’s FLASHBACK [9:20]

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Today's episode is a topic of great interest, at least in my experience. We're going to talk about some specific strategies to get out of company stock. We'll focus primarily on restricted stock and RSUs. However, you certainly could use these strategies for non-qualified stock options as well. 

Before we jump into it, I want to share why having a disciplined strategy to sell company stock is so important. One reason is it helps reduce concentration risk. Some other reasons come from a study by Charles Schwab on why participants never sold their equity compensation positions. The two main reasons were fear of tax implications and that people were worried about selling under the wrong market conditions. Another reason, people simply did not know how to sell these positions. Having a disciplined strategy helps to mitigate these issues.

There are four specific strategies that we're going to cover. These are not in any order of importance and my position is that the most important one is the one applicable to your personal situation and not some general rule developed by someone who does not know your circumstances.

• Why having a strategy to sell company stock is important [1:27]
• First strategy: Set price target [2:35]
• Second strategy: Price triggers [3:43]
• Third strategy: Systematic selling [4:38]
• Fourth strategy: Tax management [5:33]
• This week’s FLASHBACK [11:23] 

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We're back on the equity compensation train here. I know I've deviated a bit recently with other topics. However, I felt those were important enough to cover. Plus it's important to mix things up every so often. The topic of this episode is what the heck should you do with your RSUs once they vest? Sell, hold, a bit of both? We'll cover some of these items that you need to consider. As a reminder, RSU stands for restricted stock units and may be the simplest form of equity compensation.

• Why RSUs may be the simplest form of equity compensation [1:07]
• Dumping your RSUs [3:47]
• Holding shares once they are in your control [6:46]
• The Goldilocks approach [9:04]
• This week’s FLASHBACK [10:28] 

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Once again I’m breaking off from the world of equity compensation in this podcast episode. Instead, I thought I would take a step back and share some quick thoughts of what I've noticed in a post COVID world. These are just a few items related to personal finance. The observations come mostly from conversations with clients and prospective clients. This episode was initially a quick article I sent out through my weekly email list. If you want to sign up for it, just visit my website at forwardthinkingwm.com. If you go to the insight section, you'll see a box where you can sign up.

• Making life simpler [1:30]
• Working differently and being as productive as before, maybe more so [3:10]
• Not wanting to go back to the way things were [4:28]
• Customized retirement styles [5:18]
• This week’s FLASHBACK [7:29] 

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Today we're going to talk about one of my favorite expressions 'It's not what you make. It's what you keep.' I'm going to borrow from a tremendous blog post that Michael Kitces wrote some time ago. If you're not familiar with Michael he's one of the big thinkers in my world of financial planning. He puts out a ton of wonderful material. If you want to nerd out, you have to check out his blog. The title of the blog post I want to dissect is 'The Hierarchy of Tax Preferenced Savings Vehicles for High-Income Earners', not sure about the grammatical correctness but it’s a fantastic article. My financial planning and investment management firm caters to equity compensation owners who are typically high-income earners so Michael's article makes me feel like I am in good company since we both prioritize tax savings for high-income earners in the same way.

• The two categories of tax preference accounts [1:51]
• The HSA [2:33]
• Tax preferred vehicles that have doubled tax-preferred components [5:59]
• The Backdoor Roth [8:27]
• The Mega Backdoor Roth [11:05]
• Tax-efficient investing [12:48]
• This week’s FLASHBACK [14:41] 

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This week's episode of the Equity Compensation Guidebook is going to be super short. We're going to continue the conversation about taxation of employee stock purchase plans. I could try to make this episode much longer by reviewing what exactly is an ESPP. However, I'm not that guy, just go back and listen to the previous episode #37. That episode covers the basics of employee stock purchase plans as well as the introduction of taxes and disqualifying dispositions (still one of my favorite terms). There are two main items to know with taxation of ESPPs and we will cover them both in this episode so check it out. 

• What to know if you have a non-qualified ESPP [1:07]
• What to know if your ESPP is a qualified plan [1:41]
• This week’s FLASHBACK [6:02] 

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