1. In real estate, it's "location, location, location." In
stocks, the word is "diversity, diversity, diversity."
The number one reason that people don't diversify is
that they believe their company's stock will continue
to rise. This assumption is shaky, to say the least.
Volatility is a certainty. What if you have to sell
while the stock is (temporarily) down? What if the
stock drops and doesn't come back? Diversification
2. Doing nothing also has risks.
Employee stock options are not like owning stocks.
Typically, they come with a ten-year window of
opportunity, after which they disappear if not
exercised. If you wait too long to exercise, your
flexibility drops as the deadline approaches, and you
run the risk of creating an unexpected (and
unnecessarily large) tax bill.
3. Having a financial advisor can help.
An advisor helps with both the big stuff and also the
details. They understand how to select financial
instruments that address your goals. They also
understand details like the different ways that
employee stock options can be exercised while
minimizing taxes. Finally, like the carpenter that
you hire to build your addition, they own the right
tools to make the job easier.
4. The planning PROCESS has benefits beyond the plan
Even if you never set your plan in motion, going
through the process will teach you things about your
personal and family goals that you never knew. It
will help you set priorities, discover your comfort
with risk, and bring a useful coherence to your
financial picture. Remember, having a plan does not
obligate you to do anything about it.
5. Building wealth is different than just saving money.
If you have a regular savings plan, you are already
ahead of most of your peers. However, few of us have
incomes that permit significant growth and leverage.
A total plan is one that takes short-term and long-
term needs into account, along with strategies for
leveraging assets like stock options where the value
can be deferred.
6. Taxes can eat up your gains, even when you do everything
Stock gains are sometimes classed as ordinary income,
sometimes capital gains and sometimes can trigger
Alternative Minimum Tax (AMT). AMT is something that
can be avoided, or at least minimized with smart
planning. It is one of those details that financial
advisors know about, and the rest of us may not.
Even solid companies have their ups and downs. Being
forced to exercise stock options during a down
fluctuation costs money.
7. Any plan is better than no plan, but there is such a
thing as an "optimized plan."
A plan can be developed from a cookie-cutter
template. However, an optimized plan fits your
situation. It takes advantage of your personal
opportunities, your kids, your plans for a major
purchase, such as a house or a college education.
It spreads risk to suit your tolerance and it
minimizes taxes based on your situation.
8. A plan is always a work in progress.
Like your house there is always maintenance, but if
it was built right, the upkeep is easy to do. A
financial plan is also something to revisit on a
regular basis to incorporate changes in your
situation, your current and long-term needs, and
your revised or refined goals.
9. Your family is counting on you to get it right; who are
you counting on?
Financial security is a heavy responsibility, even
when shared by a couple. A financial advisor can not
only help with expert advice, but can represent a
perspective outside the family pressures that can
sometimes be useful in bringing differing opinions
10. Don't leave your stock option wealth to chance!
Too many people leave money on the table because they
don't have a well-planned strategy.
* Review what your employee stock options are worth
* Integrate your stock options with the rest of your
financial assets and family goals.
* Seek an experienced advisor to help you design a
customized stock option management strategy that
will optimize your wealth and manage risk.
Call TEAM Accounting Services at 425.646.8760 for help with your stock option exercise planning and management. We have the experience and tools to provide you with quality planning.