Why I sell my RSUs as soon as they vest
But stocks go to the moon right?
Hi!
I mentioned in my previous post that I work at a FAANG company. I get company stock in the form of RSUs which vest every six months. Although I am optimistic about the company, I don’t hold its shares. At least not directly - more details below.
Quick intro to RSUs
Restricted Stock Units (RSUs) are a part of my compensation where my employer provides me shares of the company, usually over a period of time. These shares “vest” usually every six months, and are deposited to my brokerage account. Once the shares vest, I can sell them whenever I want - either immediately or any time later.
Why I sell my RSUs at vest
1. To avoid concentration of wealth
FAANG stocks have provided amazing returns over the last 10 years or so. I’ve read about so many engineers who joined these companies early and held the company stock who are now millionaires. But, too much of any thing is not usually good. The FAANG companies are exceptions. I get paid a significant amount through RSUs and I find holding that much wealth in a volatile asset like a single stock worrying.
Don’t get me wrong, I still believe equity is a wealth building asset class. A lot of my savings are in equity. But, risking it all in one stock is not something I am comfortable with. I’d prefer to distribute my money into multiple stocks in different sectors to avoid losing it all in one go.
To diversify my risk, I sell my stock and buy mutual funds. They put my money in about 20-30 stocks, which are chosen by experts based on the stock’s risk and return potential. I don’t have the time and the knowledge to pore over balance sheets and follow the news for different companies, so I delegate it to mutual find managers. Sure, I’ll have to give up to 0.5% of my money to the mutual fund as a fee, but the returns and my free time more than make up for it.
Through mutual funds, my employer’s shares make up only about 2% of my equity investments. But the fact that I can sleep peacefully that my wealth is diversified more than makes up for that FOMO.
2. Asset allocation
I distribute my money between equity and debt, roughly in a 60-40 ratio. When the stock market does well, the vested stock skews this ratio too much towards equity. To maintain this ratio, I prefer to sell the shares and distribute between equity and debt.
3. Employer does bad = I risk losing my job
When a company falls into troubled times, say running into losses, reports of malpractice, or even external issues like governments trying to break up monopolies, the share price goes down. When the share price goes down, the company tries to cut costs. Usually the easiest way for the company to do that is by laying off part of its workforce.
As I write this post, I’m grateful that my employer seems to be doing okay, so I don’t have to worry too much about losing my job. But when I see instances like Coinbase letting go of 18% of its staff and its stock plummeting 80%, that thought is still at the back of my mind. If I hold all my vested shares in this scenario , I risk the double whammy - the share price goes down AND I lose my job. That’s a lot of wealth and income which has evaporated in a short time.
I can’t control losing my job. At least I can control how to handle my shares. So I prefer to sell them all and diversify.
Wrapping up
There’s a common theme in the different reasons above - diversification. Sure, sometimes we may get lucky with a stock or a job and build a lot of wealth. But if we want to keep that wealth, diversification is where it’s at.
Until next time!