When things don't go as well for your company or the stock markets as you had hoped, it is important to remember that stock compensation is a long-term deal. Obsessive scrutiny of the company ticker symbol is unhealthy. Joy can swiftly turn to anxiety when the stock price swings up and down like a yo-yo.

With RSUs, a common strategy is to sell most or all of the grant as soon as possible. There’s no tax reason to keep them any longer than that. Selling RSUs as soon as they vest feels good...when the price is high. But when your RSUs are vesting at a low price, it can be a little painful to think of selling them.

Should you change your strategy?

If you don’t sell them now, when will you sell? That’s perhaps the hardest part of market timing. If you don’t sell at this price, at what price do you start selling again? If you don’t sell as the RSUs vest, then you are definitely trying to time the market. This only has a chance of working well if you have objective rules that will dictate when you will sell. What are yours?

If you’ve been following a disciplined strategy up until now, you should think really hard before deviating from it. You'll want to make sure you have a reasonable (vs emotional ) reason for changing course midstream. That said, it is reasonable to re-examine your strategy and consider whether you need a new approach.

Have You Established An Emergency Fund

Do you need cash? Seeing your company’s stock price fall and co-workers get laid off makes you realize just how important cash is. Do you have an emergency fund that can get you through six months of expenses? If not, those RSUs might just get you there. After all, RSUs are really just a cash bonus, in the shape of company stock. If you got a cash bonus of $25,000 right now, would you rush right out to buy company stock with it? Or would you keep it as cash? If it’s the latter, then sell your RSUs.

Manage Your Cash Flow

You shouldn't rely on unexercised options or unvested restricted stock to cover regular expenses like car payments, rent or mortgages. Base your living expenses on your cash compensation and what you have in liquid reserves, so that your lifestyle is no worse off if your company's stock price falls.

If you need the money that's tied up in your company stock to make ends meet, then you really can’t afford to take many risks with it (holding it and hoping for a recovery is a risky maneuver).

Look On The Bright Side

Remember that stock compensation is a long-term deal, and with restricted stock or RSUs you receive at least some value at vesting, even if the company's stock price has fallen since grant.

More grants ahead. While companies are reducing the number of employees who are eligible for stock grants, your first grant of options or restricted stock/RSUs is unlikely to be your last. Stock options have built-in tax-deferral advantages that make them more beneficial than mere cash bonuses. When share prices fall precipitously, companies sometimes issue new grants, but don't expect your company to reprice underwater stock options. Down markets can be a good time to get a new stock option grant, as your exercise price will be lower than your company's usual trading range.

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About

Collabria Capital, Inc. is a San Francisco-Bay Area fee-only fiduciary financial planner& investment manager providing wealth management services to clients locally and virtually throughout the US.

Paul Saad, Co-Founder at Collabria Capital, Inc, is a CERTIFIEDFINANCIAL PLANNER™ (CFP®) focusing on comprehensive financial planning, personalized investment management, and equity/variable compensation.

This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. More information can be found here.

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The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable ,historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice .Please consult a legal, tax or financial professional for information specific to your individual situation.