Should You Consider Cashing in Your Stock Options?

Annrose Isaac CPA, CFP®, MBA
Annrose Isaac CPA, CFP®, MBA
stock options

Stock options are a common form of equity compensation, and they can be a valuable asset in your financial planning strategy. However, as with all areas of finance, it’s important to recognize that your finances and your emotions are intertwined. While you may think you make completely rational financial decisions, human nature makes it nearly impossible to do so. In the case of stock options, you may feel that your financial investment and your professional investment of time and energy are linked. This can make it difficult to make the decision to cash in – even if it’s the best financial move for you.

Below are four tips to help you separate your emotions from your financial decision-making around your stock options.

1.     Prioritize Yourself Before Your Company

You may tend to view your stock options differently than you view other forms of compensation.  Cashing in your stock options may seem like betraying your company in some way or showing a lack of confidence in its future.

Reevaluate your mindset and remember that stock options, like any other funds, represent accessible money that you can use towards your personal financial and life goals. Cashing in your stock options might allow you to pay down debt, buy your dream home, fund your kids’ college education, or grow your retirement nest egg. If you exercise your stock options at the best time, you might even be able to fund several of these goals. You can and should prioritize your own future in your financial decision-making, so keep in mind that your financial life is independent from your career – and that’s okay.

SEE ALSO: Strategies for Optimizing Employee Stock Options

 

2.     Make Rules that Reinforce Objectivity (And Stick to Them)

The ups and downs of the stock market are bound to create emotional ups and downs, too. However, you could keep your feelings from impacting your financial success by establishing rules to reinforce objective decision-making. An example would be putting parameters in place around exercising and/or selling your stock options. You might include choosing a specific price at which you’ll execute – regardless of how the markets may affect your emotions on any particular day.

Another strategy to reinforce objectivity is to set up specific target allocations and rebalancing your portfolio as needed to maintain those targets. For instance, you might decide you want to aim for keeping 5% of your assets invested in your company stock. If a periodic review of your allocation shows 10% of employer stock versus your total portfolio  , you know you need to sell enough to put you back at your 5% target.

Having hard and fast rules can help you keep your emotions out of decisions about your stock options. Take some time to create parameters that make good sense financially, and follow them.

3.     Don’t Get Stuck with Tunnel Vision

Stock options can produce quite a bit of value, and it’s easy to get into a mindset focused on maximizing your stock compensation. What really matters, though, is choosing a strategy that is right for you and your loved ones. Build financial goals that make the most sense for your life. If you’re thinking of cashing in your options but you’re worried about the timing or about making the most of them, pause and ask yourself a question:

Will cashing in now fund a goal or purpose that is meaningful to you and your family and will it help towards reaching your long-term goals?

SEE ALSO: Stock Options 101: What You Need to Know About ISOs, NQSOs and Restricted Stock

 

4.     Clearly Define Your Retirement Goals

The very idea of retirement can invoke up plenty of emotions. You may worry about never saving enough or that you could outlive your nest egg. You may feel excited about the prospect of early retirement and decades of leisure and adventure ahead. Regardless of your retirement goals, remember that your stock options may help you fund your strategy. Clearly define what you want from your golden years, then make a plan to achieve just that.

Do you need to max-out your tax-advantaged retirement accounts? Maybe proceeds from selling your company stock can help. However, it is important to fund your retirement from multiple sources instead of depending solely from stock option compensation. Diversification is important and you want to avoid having all your eggs in one basket. Think about the role your stock options could play in financing the retirement of your dreams, make a plan that supports that, then execute.

Using Your Stock Options in Your Financial Planning

Employee stock options can feel like an emotionally charged asset, but they don’t have to be. Remember that options are simply a part of your compensation that you can use to support your personal goals.

If you’d like to work with an objective, experienced partner as you determine how to best use your stock options, we can help. At Wade Financial Advisory, we offer depth of knowledge and breadth of experience in helping you plan for your financial future – including how to best utilize your company stock options. If you’re interested in personalized, relationship-based financial planning services, schedule an introductory call with us today.

This communication contains the opinions of Wade Financial Advisory, Inc. about the securities, investments and/or economic subjects discussed as of the date set forth herein. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENTS BEAR RISK INCLUDING THE POSSIBLE LOSS OF INVESTED PRINCIPAL.

Wade Financial Advisory, Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Wade Financial Advisory, Inc. at (408) 369-7399 with any questions.

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