4 Financial Planning Tips for Managing Concentrated Stock Positions

4 Financial Planning Tips for Managing Concentrated Stock Positions

September 28, 2018

Over the past ten years, pharma and biotechnology companies have increased their reliance on performance-based awards and RSUs, while stock option awards have decreased significantly.

As a result, employees from mid management to C-suite levels often end up owning highly concentrated stock positions. If your company stock holdings represent more than 10% of your net worth, that is typically considered a high concentration.

If you own a concentrated stock position, consider these tips to help manage risk and ensure you remain on track to meet your financial goals:

  1. Understand all of your company stock positions, whether they are stock options, restricted stock units, or shares purchased through your ESPP. Know your vesting schedules and keep track of them on a spreadsheet if possible.
  2. Prioritize your financial goals and re-evaluate annually whether you are on track to achieve them. Depending on your short- and long-term goals, you may want to consider selling a portion of your company stock. Understanding how much risk you can tolerate based on your financial goals will help you manage this decision.
  3. Understand your tax liability before you make any changes. While everyone wants to minimize his or her tax liability, worrying about taxation only is not a prudent financial planning strategy. If you have near-term financial goals, such as college tuition payments, you should avoid jeopardizing your ability to meet these goals and potentially losing money due to share price volatility.
  4. Pharma and biotech company stocks have had a great six-month run. If you remain bullish on your company’s stock, you might want to consider strategies to hedge your risk. If your company allows, you may want to purchase a put option, sell a call option, or execute a combination of these two hedging strategies.

Remember, tying up too much of your wealth in your employer’s stock can be risky. Make sure you are monitoring your exposure and managing this risk wisely.