The Significance of Investment Screenings
We believe investment screenings are essential tools for evaluating and filtering investment opportunities based on specific criteria. Investment screenings, also known as investment filters or screen
Do you own stock options from a current or previous employer? Understanding what employee stock options are, how they work, and how to handle them can help you get the most out of them.
Employee stock options aren’t actually shares of stock. Instead, they are the right given to you to purchase a certain number of stock shares at a set price, called a strike price, during a specific time frame. The options vest after an initial period of time and for a defined number of years. After they vest and before they expire, you can use them to buy the stock at the strike price. You can either retain the shares you have just purchased or sell them. When you exercise the options and purchase the shares, you will realize a financial gain when the price has increased in value during this timeframe. However, if the stock has fallen in price from the strike price, you simply do nothing. The options expire without any financial payment due from you.
Employee stock options allow employees to feel more connected to their company and offer increased compensation potential for little risk. They are popular with startups that want to reward early employees prior to going public and for established companies that want to encourage employee longevity and tenure. And, they give employees a chance to benefit if the company performs well.
Let’s say that you are given stock options to buy 100 shares of your company’s stock at $10 a share.
Example One:
Example Two:
If your stock options have followed Example One (rising in value) and you decide to exercise your options but keep the stock instead of selling it, experts caution that it can be risky to have too much of your net worth dependent on one company, “concentration risk”. You should speak to a financial advisor and your tax advisor to determine what is in your best interest. At Stonecrop Wealth Advisors, we routinely work with clients to determine the right decision that won’t jeopardize their financial future.
Companies generally issue one of two types of stock options which differ in how they treat taxes:
ISOs, in particular, can benefit from review by a financial advisor and a tax advisor to ensure that your tax situation is carefully evaluated.
Once you’re fully vested in the options, you should speak to a financial advisor before making any decisions to exercise them. You’ll need to consider the risk (if you keep shares in your company, for example), tax planning (such as if it’s an ISO), and the correlation with the rest of your portfolio.
Receiving employee stock options could offer you surprising and unexpected money. What will you do with it? Will it be used for something you’ve dreamed about, such as a special trip? Will you put it toward your children’s education or add it to your retirement plan? Will you use it to help others? It may also make sense to talk to a financial advisor about the best way to pursue your plans.
As a full-service financial and investment advisory firm that works with individuals, families, and non-profit institutions, we help you connect your money to your purpose. Then we take your resources and put them on a path towards a more prosperous future.
Our mission to help you is what motivates us. We seek new clients because we believe you will benefit from what we do and how we do it. And nothing makes us happier than when our clients can do more than they thought they could, and their ability to do good and to be generous toward their families and communities is expanded. Receiving employee stock options offer clients another opportunity to support their mission. We can help ensure you get the most out of this compensation.
Like to find out more about Stonecrop and our financial planning services? Sign up for our weekly eNewsletter, MacGray Matter, from our president, Douglas MacGray or connect with us here. Either way, we look forward to sharing more about our ‘wholistic’ methods with you.
AUTHOR
Amy Weir
DATE
March 4, 2022
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We’d love to hear about your organization and discuss how our extensive experience advising institutional clients on non-profit investment strategy can help support your mission and objectives.
We believe investment screenings are essential tools for evaluating and filtering investment opportunities based on specific criteria. Investment screenings, also known as investment filters or screen
Being a Christian in today’s time can be both a challenging and rewarding experience. On one hand, Christians face a world that is becoming increasingly skeptical of faith and has made it harder
With the abundance of information and services available, it can be daunting when searching for a Christian financial advisor who meets your criteria. If achieving long-term financial wealth is an obj
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