Comment by time_to_smile | Hacker News Reader

Comment by time_to_smile | Hacker News Reader

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> it's terribly illiquid

I'm amazed at how many people that get a significant portion of their comp as RSUs hang on to their shares after vesting.

During this insane bull market it's happened to work out, but having your income and a major portion (for most tech workers) of your assets perfectly correlated is absolutely a bad investment idea, not to mention the fact that you can only trade during approved windows and are not allowed to do any hedging (such as buying protective puts).

Even if you're wildly bullish on your company, at the very least diversify a bit with highly correlated stocks (for example if you're a GOOG during the last decade at least split it up among other FAANG). This way you can at least protect yourself in the event that your particular company gets hit hard.

It's incredible how far away the dotcom burst is in people's minds (or even 2008). Cheap money has led to an insane period of growth in tech, but investing as though that were the norm is very risky (without even optimizing your reward for that risk).

The best financial decision I ever made was to sell my shares after vesting.

I realised that even if I believed in the long-term business model of the company, having a significant portion of my money tied up with a single stock was not a good idea.

It would have still been a good idea even if those shares hadn't lost 90% of their value in the following year.

I was working for a major tech company—definitely not a startup during dot-comb. I had some amount of vested shares which seemed a lot at the time. I spent some but held onto a few tens of K$. Stock went down from over $100 at peak to about $4. By years later had recovered to about $25–and then Dell acquired for a premium.

Tech base salaries are so high that it's easy to keep RSUs. Also, IME, within the last ~18+ years it's been extremely beneficial to hang onto them.

There's literally no advantage to hang onto them, versus selling them on vest day and reinvesting in a wide set of tech stocks (if that's what you want to invest into).

There is an advantage if you are in the middle of a tech rally, and the other option is the investing in whole market.

All you need to do is time the next downturn...

I have (and continue to) err on the side of diversification. Without fail, I have simultaneously regretted it and done better than colleagues that held and tried to time the market.

I could have realisitically made 2x what I did. However, I also could have made half as much (and know people that did halve their income playing these games). Halving my income would have had a much bigger impact than doubling it.

There's still no advantage in a tech rally, you'd be far better of reinvesting highly correlated companies, where you have much more liquidity (since you're not only allow to sell during trading windows) and you also are allowed to perform better hedging in the case the market does start to get shaky, plus your portfolio will not drop based on the possible misstep of a single company.

> I have (and continue to) err on the side of diversification

I'm in the same camp as you, and the point I always make is that: If I'm wrong and our company stock sky rockets, beating everyone else in the market, then great! I still have unvested RSUs, we'll get larger bonuses, plus my job security has increased, sure I missed out on even more gain but I'm in a good place!

If I'm right, and something bad happens to my employer, at least my loses will be reduced by my other investments. I don't have to worry about everything falling apart at once.

Which I suppose is the entire point of variance reduction in the first place: it makes the great times a bit less great, but also makes the worse times not so bad.

I generally agree with selling as soon as possible but there are some significant capital gains tax advantages for holding vested RSUs for a year. 15 to 20% vs. 32 to 37%.

They’re taxed as ordinary income when they vest, and only gains and losses from that point are considered capital gains or losses. And your cost basis is the value they vest at, so it’s no different than getting cash and buying those shares immediately. No special advantage to holding for a year vs any other stock you acquire with cash.

> They’re taxed as ordinary income when they vest

That's correct, whether you sell them immediately or hold them.

> and only gains and losses from that point are considered capital gains or losses

That is also correct and was my original point. If you sell immediately, you've already paid the (personal income rate) tax and you're done. But if you don't sell immediately, waiting a year is preferable so you are able to claim the long term capital gain rate instead of paying the short term/income rate.

But those benefits and trade-offs have nothing to do with RSUs, it’s just how all stocks are treated. And thus not relevant to a consideration of whether to hold RSUs or sell immediately on vest.

There is no difference between holding them for a year compared to selling when they vest and then buying another stock and holding that for a year.

Actually there isn't, other commenter explains why.

Selling them instantly also protects you from selling based on insider knowledge later (most employees won’t really hit this but who knows).

Endowment effect.

Or simulation heuristic: https://en.wikipedia.org/wiki/Simulation_heuristic

Yeah. I didn't know the name for this, but have seen it.

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