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  • Writer's pictureMalissa Marshall, CFP®, MS Tax, EA

Year End Planning for Equity Compensation: Investments - Part 1 of 6

Updated: Aug 25, 2023

planning for the impact of equity awards on your investment portfolio

I’m currently putting together my notes to prepare for year end planning meetings with my clients, and since so many of them have been granted equity compensation by their employers, I thought it would be helpful to lay out some thoughts for consideration in advance.

In particular, I wanted to address three important areas that affect decisions around exercising and selling company shares, namely portfolio concentration, taxes, and cash flow. I’ve designed these three blog posts to address each of those issues in turn, and the blogs should be read in order as that would follow the natural decision-making process.

Most of the articles I read about equity compensation deal with a particular type (RSUs, NQSOs, ISOs, etc.), and treat them from either a planning perspective or a tax perspective, but rarely both in a deep way, since most advisors are either financial professionals or tax professionals, and rarely both. So I planned this series to provide a more holistic view, taking a step back from the mechanics of the particular holding, and focus instead on the order of questions that should be addressed when deciding what to do with the shares (if anything).

Unfortunately, many people find their corporate equity awards so complicated that they end up doing nothing, and thereby leave a lot of money on the table. So these blog posts are focused on providing you with sufficient information about the types of decisions you’ll have to make and the implications of those decisions, so that you actually feel confident making them.

TLDR: These three blog posts will help you make (better) decisions.

Trigger warning: there will be some technical jargon and basic mathematical equations, not to mention plodding narrative, but I’ll try to provide some comic relief if you bear with me, and tie it all up with some thought-provoking questions at the end.

Viewing Your Equity Compensation as Part of Your Overall Investment Portfolio

Toward the goal of making a decision (to either do something or to do nothing), it’s first important to understand what equity compensation means within the context of your financial life: think of it (very metaphorically) as an extra cash reserve somewhere out there with your name on it that you just have to figure out how to tap into.

Of course, before you make a decision about what to do with it (if anything), you need first to understand how much you have, how much you should have, and what to do if you have too much. Sound straightforward enough?

Here comes the mathematical portion of the program.

Step 1: How much do you have?

To begin with, a basic question: how much value do the shares you hold represent? Of course, the answer can be complicated: it depends on several factors, such as the date (how many of the shares have vested), how the market is doing (what the current fair market value of your company’s stock is), and what previous decisions you’ve made (how many shares you’ve already exercised and/or sold).

Hopefully you have within your records details of the initial grants, or know how to access them from your company’s intranet: the grant dates, equity types, number of shares granted, associated vesting schedules – meaning how long you need to wait before you have “earned” the shares you’ve been granted – etc. Vesting schedules are usually time based (for example, one of the most common schedules is 1/3 per year for three years on the anniversary of the grant date), but occasionally they are tied to meeting performance goals. Obviously, the former scenario is easier to plan for in advance.

Please note: don’t feel embarrassed if dealing with your equity compensation is difficult or confusing for you. This is a highly technical and emotionally challenging area and is not part of any standard college curriculum. So take a deep breath, be kind to yourself, and keep going.

It’s extremely helpful if you can organize your holdings in a table, and preferably in Excel so you can use the functions to perform calculations for you. If this isn’t your forte, find a colleague who is a master of this particular universe to help you out.

Equity Type


Vesting Period

Strike Price

Current FMV

Total Value



2/15/20, 100 shares

1 year cliff



​$4,000 (= 100 x (45.24 – 5.24)


2/15/20, 100 shares

1 year cliff



​$4,000 (= 100 x (45.24 – 5.24)


2/15/20, 100 shares

1 year cliff; assume 40 shares sold to cover taxes



​$2,714 (= 60 x 45.24)



In this scenario, Lucille has RSUs which already vested, ISOs and NQSOs which have vested but she hasn’t yet exercised, and the option to participate in an ESPP plan.

As you can see, she has different types of decisions to make: whether to sell the RSUs, whether to exercise the ISOs or NQSOs, and whether to enroll in the ESPP plan. Decision overload!

But now we’re not making decisions – we’re trying to assess the value of what you currently have i.e. what you can actually make a decision about. Once you know the value of your corporate equity, you can compare this to the total value of your portfolio which may trigger the need to make a decision.

TLDR: Some basic math is required, but organization of the grant, exercise and sale details is key.

Step 2: How much is too much?

If your total investments (both in brokerage and retirement accounts, and including the value of your corporate equity) is $400,000, then the value of the corporate equity in this scenario ($10,714) would represent only a small fraction – less than 3%. Your risk tolerance and cash flow needs aside, holding such a small portion of your portfolio in company stock is not overly concentrated.

However, many employees find themselves in a very different position, especially if they are not actively managing these holdings, ending up with 20% or more of the total value of their investible assets in company stock. The more concentrated your holdings are, the higher the risk that if something happens to your company, a significant portion of your net worth – not to mention potentially your salary – could be detrimentally (even devastatingly) impacted.

In general, holding more than 5% of your investable assets in a single company’s stock is considered concentrated, and if you hold more than that, you should be actively working toward creating a plan to diversify those holdings – and the higher the concentration, the more urgent the task ahead of you.

TLDR: Keep your employer equity holdings below 5% of the total value of your investment portfolio.

Step 3: How do you decide what to do next?

Assuming you need to do something with those shares – either because you are overly concentrated, because however many shares you do hold feels too risky for you, or because you have more important goals than being a corporate shareholder – it’s best to step back and first ascertain what those particular goals are – what you will do with x dollars in y time period – as this will help you make decisions that will meet your specific goals, and at the same time do so in a manner which is as tax efficient and cash flow-friendly as possible.

To answer these questions – whether to take action or not, and if taking action, when and how much, here are some questions I would pose to you:

· What are your deep dreams? Or, more practically, what are your financial goals?

· Is owning a concentrated position in your employer’s stock on that list – does it make your heart sing, or does it keep you up at night?

· If there were a perfect amount, how much of your employer’s stock would you hold?

· Have you fulfilled these basic goals –

o Do you have an emergency fund with at least 3-6 months’ expenses?

o Are you saving sufficiently for retirement?

o Will you need to pay for college for your children, or support your parents?

o Do you have charitable goals?

o For estate planning purposes, does it make sense for you to start a gifting program within your family?

To the extent that you have any goals which rank higher than being a corporate shareholder, consider taking action.

And, if you find yourself on the other side of such goal setting exercises – because your financial goals have all been accounted for, fulfilled, checked off – then I would ask: do you already have enough? If you’ve met your financial goals, what other dreams do you have for your life – whether traveling, starting a second career, getting more involved in the community, taking up an art, ____________?

Once you are clear on what you need, how you want to live your life, and what is important to you, then you are in a position to build a stock diversification plan with confidence.

It is much easier to start from your dreams when examining your equity grants – the decisions will be much clearer to you, mathematics aside.

When I moved back to Vermont from Switzerland six years ago, I joined a local sangha, and at one of the very first meetings I attended, they played a Dharma talk from Tara Brach (linked below). Some of the specific teachings that have stuck with me over these years:

· Live the life fully

· Gratitude: love what is, remember what you love, and express what you love

· Freedom is knowing that you have enough

Whatever your spiritual beliefs (this is a Buddhist talk, but Tara’s background is Jewish, she grew up Unitarian, and is a trained psychotherapist), I highly recommend this talk as a way to help you get clear about what is important to you – at least the first 20 minutes, before the first meditation:

I started my own businesses three years ago and have worked like a dog for most of that time – but the financial success I’ve found seems to pale in comparison to the joy I’ve felt tending to my flowers and just sitting outside in the sunshine – and having the freedom to do so.

TLDR: Live the life fully.


Image by bady abbas

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