The Difference between RSU's and Stock Options
RSUs and stock programs are different, and should be treated differently.
If you work in today’s big technology industry, it is very likely that you are getting some form of stock based incentive, as part of your compensation. The two most common forms of compensation are restricted stock units (RSUs) and stock options. These two programs both offer very nice incentives for employees, but they are slightly different, and should potentially be treated differently. Also, any time that you hold some form of company stock, you should view your exposure to the company from a holistic perspective, to your overall portfolio.
What is an RSU?
RSUs, are awarded to employees at some date, and typically have a vesting period at some point in the future. Often the vesting will be 25% at the current date, and 25% in one year, 25% in 2 years … etc. At the time of vesting, the company buys a share, and gives it to you. In this way, it is much like a cash bonus. And like cash bonuses, the company will withhold taxes at that time of vesting (commonly, they will just keep shares from your award).
For example, you just received 100 RSU’s that have vested. The company stock is $1. You will received 100 shares of your company at $1 = $100 of compensation. Assuming you are in a 25% tax bracket, the company will hold 25 of your shares. Which means you net out 75 shares.
What do you do with an RSU?
You have 2 options with RSU’s … you can either sell them immediately or hold them. If you sell them immediately, since you just paid the taxes on them, and they likely have not appreciated much, you will not have to pay any capital gains taxes, and you will just receive the cash. if you decide to hold them, and they appreciate, then you will have to pay the capital gains on them.
One major advantage of RSUs
They almost always have value, even if the price of the stock has dropped. For the certainty of that value, RSU are commonly deemed more valuable than stock options. Which brings us to …
What is a stock option?
A stock option, gives the holder the right to purchase a stock in the future at a predetermined price. Like RSUs, options are given out as performance incentives, and typically have a vesting period.
For example, you have the option to purchase your company stock in 1 year’s time at $1. If the stock goes up $1.50, then it would make sense for you to purchase the option at $1, because you would have a built in .50 return. If the stock dropped to $.90, you would not exercise the option, b/c you would be better off to buy it on the market for $.90 than through your options at $1.
**Note that exercising the option is a purchase, but not a sale. Which means that you will not pay any taxes at the point of the exercise. You will only pay taxes upon your sale of the stock.
What do you do with an option?
You should have no more than 5% of your portfolio in single stock.
You can either sell it immediately and pay the capital gains equal to difference b/w the current price and the price at exercise. Or you can hold it. There are advantages to holding it for greater than a year, since you will pay the long term capital gains tax (as opposed to short term capital gains, assessed at your ordinary tax rate).
Advantages of options
You have greater control over taxes with options, since you decide when to sell them (and thus when to pay taxes on them). And since they are riskier, companies typically give you more options.
How do options and RSUs play into your overall portfolio?
Most people just let both their RSU’s and options sit and collect over time. They don’t manage them, they don’t sell them, they don’t really think about them until they move to another company, or they grow big enough to force a conversation. This is a BIG problem. From a simple portfolio diversification perspective, you should have no more than 5% in single stock. And your vested options/RSUs are part of your portfolio. If you have 100k sitting in RSU’s or options from your company, you are very likely way over-allocated. Second, you already have plenty of exposure to the results of the company. Just check your bank account every other week, who is making auto deposits?
If you have “new” RSUs just sell them, you won’t (likely) have to deal with any major tax consequences. If you have older RSUs then you will need to check for capital gains exposure, and make sure you factor that into your savings for next year. Since you had to exercise your options, that means, that very likely you have some major capital gains exposure. So beware, when you sell them.
After selling them, increment into a low cost ETF, rinse and repeat next year.
2 New Apple Products That Could Save You Money
Apple held its annual spring event at its headquarters in Cupertino, California, on Monday, March 25th. Two of their new products are particularly interesting from a personal finance perspective and could save you some money.
Apple held its annual spring event at its headquarters in Cupertino, California, on Monday, March 25th. Two of their new products are particularly interesting from a personal finance perspective and could save you some money.
Apple News+
I am an apple snob and stockholder.
We have too many apple devices in our household.
Apple News+ is a new service that allows you access to a large number of magazines and newspapers, as well as their standard news content. This comes at a set monthly subscription rate of $10/month. At first blush this seemed like an interesting deal for $120/year. I’m skeptical of monthly subscriptions but I love magazines, and I get my news mostly from The Wall Street Journal and The New York Times. So I figured I would run a quick audit in our house to see how much we spend on annual new/magazine subscriptions. I used magazines.com to determine pricing.
GQ - $20/year
Bon Appetite - $20/year
Fortune - $20/year
The Economist - $95/year
ESPN the Mag - $30/year
WSJ - $467/year
A total of $652 in reading material!
Holy crap … I was slightly horrified to realize that total. The vast majority of my reading is on a screen, so News+ seems like a bit of a no brainer for our family. Do you know how much you are spending on this category? Add it up!
Apple Card
I am generally opposed to credit cards as a means to pay for your typical monthly expenses. I prefer to spend out of my checking account, so that I know exactly what I have available. And it forces me not to over spend. When I really want to nail down my monthly discretionary spending, I like to load my weekly cash on the Cash app card. I also think that cash back rewards and sky miles bonus points are gimmicks meant to entice your lizard brain to spend more.
If you decide that you need a credit card, if you travel at all, you will, or that you can control your spending urges, and want to get the cash back rewards. Apples Card is a pretty cool product.
It is tightly tied to your apple wallet
it gives daily 2% cash back rewards
it allows you to control your payment options
it provides some visibility into you budgeting/category spending
it gives you a physical version, made of titanium
there are no annual charges
So all in all the new card (which is not yet available), looks like an interesting product. I am curious to see how things play out when it is available. I like the easy integration with the wallet. And I like visibility it provides for your spending.
*Note that there are currently cards available that offer a nice cash back option. So you don’t have to wait for this card to get cash back.
Tata and Josh's Surprising Connection
The Atlanta United soccer team, a new expansion team in the MLS and is headlined by an internationally renowned head coach “Tata” Martino.
Tata Built a winning team
In Atlanta, the big sports phenomenon is the Atlanta United soccer team, an expansion team in the MLS. The team is headlined by an internationally renowned head coach “Tata” Martino, who built the team from the ground up, using young, and generally untested players. Led by the dynamic duo: striker Josef Martinez and midfielder Miguel Almiron. The team beat NY Red Bulls (NYRBs) last week to proceed into the championship match this Saturday against the Portland Timbers.
Tata Always has a strategic plan
A friend of mine described the playoff game as “pretty ugly”. Given that the United had won the first of 2 legs 3 - 0, the onus was on the NYRBs to come out and score more than 3 goals. With that in mind, Tata, created a game plan around strong defense, with counter striking possibilities to Martinez and Almiron. This meant, in all likelihood that the NYRBs would possess the ball, have more passes and attempt more shots. While the United would abide the onslaught and use meager chances to create tremendous upside, sending individuals on runs to the goal, essentially unassisted. During much of the game, it did look, “ugly”. However, the plan unfolded exactly as Tata foresaw. This “ugly” plan yielded the opportunity for Atlanta United to proceed to the next round of the playoffs.
For each game— and the season— Tata had a strategic plan, created around his players strengths, working towards “goals”. It allowed individual players the freedom of play and expression, but directs them towards the “win”. Rather than the players descending into ball hogging, fruitless passes and being frustrated by playing hard but not bringing home a win.
Here is an interesting article on entropy, and reminds me that a system left unfettered, will descend into chaos.
How’s your financial plan and track record?
Like Tata, I enjoy working with professionals and families that are at the beginning stages of their financial game but have potential and the commitment to follow a smart plan. Do you want a strategic plan tailored to meet your short and long term goals? Do you want a coach that will keep you accountable so you reach those goals? If so, I want to help you plan and grow your wealth so you can live better.
Contact me if you are interested in learning more.
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Why Thanksgiving is My Favorite Holiday
Thanksgiving is a major operation!! Much like financial planning, you better have a plan if you want to enjoy reaching your goals.
Thanksgiving is almost here! It’s my favorite holiday and features all my favorite things: Cooking, family, relaxing, wine, blazing fires, card games, pies, football and kids running and playing! No gift giving expectations, the weather allows plenty of outside time, and it’s a time to recognize the meaning that your friends and family bring to your life. Thanksgiving! I love every minute of it.
A big added bonus, for me, is that our family tradition is to host. My family comes in from Lake Ocononee and Rome, GA. My in-laws come in from Florida and Connecticut. And I savor the 3 or 4 days of the year that we are all together.
Did I mention that I love to cook and I’m head chef for ~20 people during our Thanksgiving visit? Yes, I cook 3-4 days for 20 people and I still have time to enjoy and savor the time with my family. What’s my secret? Planning. Yes, It’s all about creating a plan that fits our family’s needs, then following through with some hard work, while enjoying the process.
Josh Chamberlain’s Thanksgiving Plan
Saturday/Sunday
Finalize the menu for the week
Grocery shop at the YDFM
Buy beer, wine and bourbon
Monday
Audrey (my mother-in-law and sous chef) and I check for missing ingredients
Make another run to the farmers market
Start the pie dough
Drink wine and relax
Tuesday
Brine turkey
Make pies
Cook black eyed peas
Drink wine
Wednesday
Bake mac & cheese
Cook greens
Bake potatoes
Roast brussel sprouts
Audrey and I each make a soup for our yearly “Soup Off” (she normally wins)
Attend neighbors pre-Thanksgiving party
Thursday
Fry turkey
Prime rib
Roast Carrots
Bake rolls
Make the gravy
Make Salad
Savor the feast
Watch football
Drink wine
The kids love to help make whipped cream.
Friday
Enjoy Leftovers
Family hike
Family pictures with Cathy Davis
Saturday
The weekend is only just beginning!!
It’s a plan with lots of room for a wonderful week with family and friends.
*Does anyone see the parallels to financial planning? If you want to talk turkey, contact me.
Happy Thanksgiving to you and your family!
Financial Checklist for Expectant Parents
Becoming a parent is one of life's biggest joys and responsibilities.
Congratulations! You are having a baby!
Becoming a parent is one of life's biggest joys and responsibilities. Once you find out you are having a baby, life quickly becomes very busy with preparations and planning for your little one. Your calendar will become full with everything from scheduling medical tests to signing up for childbirth classes and picking out a car seat.
Preparation you can’t afford to avoid!
A topic that many expectant parents are reluctant to discuss with their close family, friends, professionals or even each other, is money! How in God’s name are you going to pay for another person to live in your house and eat your black olives and 12 month old Manchego?
The Cost of Having a Baby
The average child, in 2018, will cost, out of pocket, ~$3,500 to deliver … and they are not even home yet. And the cost of raising a child from birth to 18 years is somewhere in the neighborhood of $350,000! If you enjoy splurging on your kid, taking vacations, weekend trips, nice clothes and going out to eat, it can quickly add up to $700,000. Now, take a deep breath. By implementing a plan, there won’t be any need to stress over baby related finances.
Pre-Pregnancy Planning
If you can, get started when you decide to start a family.
Assess Your Car.
Is it safe, dependable and can it accommodate a baby? A baby doesn’t require a SUV or a minivan, a decent sized sedan will do. Every 3 years, my wife and I take turns getting a car. I like to drive them to ~160,000 miles. When “baby making” enters the family discussion, the next car purchased should take baby into consideration. (We bought a Subaru Outback 2 years before our first son was born).
Assess Your Living Situation.
Get into a housing situation that is not likely to change for 3 to 5 years. If you are renting, get something big enough to accommodate your growing family. If you have a house, make sure the location is family-friendly. If you don’t have a garage or car port, think about how you are going to feel dragging a car seat through a cold rain storm.
Have Fun with your Partner.
You may think that things are not going to change for y’all. THEY WILL. You won’t be going out for late night dinners. You won’t be catching a last minute flight down to Miami. You won’t be tailgating with your college friends on Saturday’s— or at least not very often. So enjoy your baby-free freedom while you still can. Jenn and I hit Costa Rica, Belize and Hawaii in the two years leading up to becoming parents.
Save.
I recommend $20,000. But do what you can, while having fun.
First Trimester
Mom-to-be may be experiencing some morning sickness and be worn out from her pregnancy, but you should still prioritize:
Start a budget for the coming 40 weeks. Plan on a weekly/monthly schedule, how you will draw down and distribute your cash.
Get a will drawn up by a trusted estate lawyer.
Complete any house projects (non-baby related), that you’ve been putting off.
Review your health insurance. It will be important to have a doctor in network, at a hospital you trust and close by. Reviewing your health coverage will give you an idea of your out of pocket costs. Also, you may determine after reviewing your coverage from a parent perspective, you may want to change providers or plan at your next open enrollment.
Second Trimester
By now, you should know if you are having a boy or girl — or maybe you’re keeping it a surprise. Either way, you can start nesting in earnest!
Set up the nursery. Buy the bed, changing table, nursing chair, paint the walls and decorate.
Determine your maternity and paternity leave. And then talk to your boss or Human Resources. If you work at a small business, the quicker they know what is coming, the better they can prepare.
Review your company’s paid leave benefits. If that’s not an option, look into Short Term Disability benefits. Short Term Disability can cover you for a percentage of your compensation. If you are a dad, take a long hard look at paternity leave. The difference in women’s and men’s pay in the work force these days is actually statistically related to “moms” -v- men. Women with no kids, earn just as much as men. A key to potentially solving this, is having dad take paternity leave. It is a complicated topic, but worth consideration.
Borrow and bargain shop. This is something I wish I did with my first son. We wanted all new, the latest and greatest for our little one. We spent a lot and didn’t realize how quickly the first year goes by and how quickly he would grow out of things. Reach out to your network of friends, family and Facebook and see who has baby gear they're willing to sell or give to you. Cribs, changing stations, strollers and clothes for you and baby are great items to borrow.
Set up baby registry. Make sure and ask for all of the things that you really want and/or need. Check out the online lists like Amazon’s Baby Registry. It offers almost everything, and is convenient and easy for family and friends that don’t live close by. Be thoughtful about compiling your list. And also be cognizant of the size of the shower, when setting your wish list.
Explore Child Care. Will one parent stay home? If not, tour day care facilities and/or interview nannies and ask friends for recommendations.
Third Trimester
Finalize Child Care. Make sure day care applications are complete and starting dates are set or get a commitment from your nanny.
Stock pile baby supplies. Be savvy, get to know prices and buy diapers, wipes, food, clothes when they go on sale.
Pack your Hospital Bag: At 36 or 37 weeks, pack your hospital bag and install your baby’s car seat, just in case you go into labor early. Here’s a great list of what to pack.
Schedule a newborn photoshoot (with an affordable photographer). You’ll treasure those photos forever. **Yes, that is my son in the top pic. Isn’t he cute?
FOCUS ON BABY!!
How a Financial Planner Can Help
Becoming a parent is both exhilarating and overwhelming. You want to provide your baby with a safe, secure and loving home. Having a sound financial plan can help you provide that security for your family:
Estimating your medical costs
Planning leave from your job
Budgeting for your new arrival
Estate planning - will or trust
Life and Disability guidance
14 Questions to Ask a Financial Planner
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14 Questions to Ask a Financial Advisor Before Investing
It’s not easy finding a financial advisor. He or she needs to be someone you can trust with your hard earned money and you need to feel comfortable speaking candidly with them about your concerns, wants and needs. Asking these questions can help you decide out if this person is a good match for you and your family.
A Financial Advisor needs to be someone you can trust, you need speak candidly with them about your concerns, wants and needs. Asking these questions can help you decide if this person is a good match for you and your family.
Are you a fiduciary?
Yes. I am a fiduciary. From an SEC perspective, that means I list in my ADV form 2 how I get paid, the services I offer, and any conflicts of interest. Being a fiduciary means more than that to me: I put my clients interests ahead of my own. I work with trusted 3rd parties. I look for the best products for clients, taking into account quality, cost and timing. I don’t take any commission of any sort.
2. How do you get paid?
There are three ways I get paid:
Providing financial services on an ongoing basis. Monthly subscription of $125/month.
Creating a financial plan ($125/hour approximately 8-12 hrs).
1% of assets under management
For details on these offerings see Services.
3. What IS YOUR “all in” cost?
In addition to the services I outlined above, you would pay:
If I am managing your accounts, you would pay $15.95 per trade through my custodian, SSG.
Standard capital gains/losses on trades
.04%/year on ETFs (that comes to 40c per $1000/year)
4. What sort of tools do you use for budgeting?
I have a spreadsheet that utilizes a range of custom formulas that makes itemizing expenses, income and savings simple and easy to understand . Additionally, I have a variety of software and tools that facilitate the financial planning process.
5. How Do you deal with security?
My clients security is my top priority and is integral to my business. All of our assets are protected by multiple sets of encryption. Online access to accounts are protected. I use 2- factor authentication when sharing cleint information. Any spreadsheet/worksheet that I use is protected with unique and secure passwords.
6. What are your qualifications?
I work with families in a range life stages. I earned an undergraduate degree in Industrial Engineering from GA Tech and an MBA from Ga State. I passed the series 65 exam.
7. How would our relationship work?
I believe the key to a mutually beneficial long-term relationship is through trust and context. With that context I can better provide useful advice. I believe that meeting 1 time per year is not nearly enough. Our meeting cadence will be determined by my client’s situation as well as the issues needing addressed. My clients call, email and text me as needed and I respond in a timely manner.
8. What is your investment philosophy?
The best long-term results are achieved through creating an asset allocation that is well diversified, that will meet your goals (given your risk profile) and requires continual contributions.
I am not a stock picker. My solutions are data-driven. Historical data shows that the vast majority of stock pickers are not capable of beating their respective indexes, and generally end up with higher administrative fees.
I use low cost Exchange Traded Funds (ETFs). I believe the future will look better than the past, and as such, the best companies in the world, as represented by ETFs, will continue to appreciate over the long-term. I do not worry about the daily variations of the market, which tends to be irrational in the short term.
9. What benchmarks do you use?
The S&P 500 and inflation.
10. Who is your custodian?
A custodian is a company that performs trades and holds your shares. Eg: eTrade, Schwab, Fidelity. The custodian I use is Shareholders Service Group (SSG). They use Pershing a subsidiary of The Bank of New York Mellon, the largest custodian in the world with over $27 trillion in assets under custody.
11. What asset allocation will you use?
The majority of a client’s allocation should be in stocks rather than bonds and cash. Historical data shows that bonds barely keep up with inflation. The key to your future is in purchasing power, which means your money needs to beat inflation.
12. Give me an example of a portfolio you’ve designed AND ANY THOUGHTS ON HOUSING.
Each portfolio I design is specific to the client and their current financial situation, goals and risk attitude. As an example, one family I work with wants to reach their financial goals early. They contribute regularly and are mentally unaffected by the short-term variability of the market. At a high level their portfolio consists of low cost ETFs in an S&P 500 tracker: 30%, Emerging Markets: 30%, Small Caps: 30%, Cash: 10%.
Any thoughts on selling the family home now, and either renting or buying a less pricey house: this comes down to the goals of the family. While its true that many family’s biggest monthly expense, largest asset and largest liability is their home, it’s also true that it is their highest utilized asset. If you live in a house, that fits the size of your family, has attributes that you appreciate and does not cause you undue financial hardship … why mess up a good thing? If that set of “if’s” you cannot answer in the affirmative, and you can find a house that better meets your family goals … well it may make sense to move. As in stocks, I am not a believer in trying to time the housing market. I have heard rumors of friends in Decatur who are considering selling now (at a perceived high), renting for 2 years until a drop, and then buying again. I think thats crazy talk, for at least a dozen reasons.
13. What are the tax implications of working with you?
If I am managing your assets, any transaction sales will have some sort of tax implication, through capital gains/losses. I limit the tax implications by limiting the # of transactions.
14. WHY FAMILIES? WHY PROFESSIONALS?
In my experience the complexities of families deserve an added set of professional eyes administering a solid plan. There are many moving parts to a family, that include the expenses of starting a family, all the way into paying for college and eventually estate planning. More voices from a family generally brings more perspectives, something a trained professional can aid in clarifying.
Professionals are people driven to be really good at job, hopefully a job they love. In order to drive to be the best, many professionals are forced to neglect certain aspects of their lives. I have seen too many extremely smart professionals who have neglected their finances to the detriment of the long-term success of their family. I believe that by relieving families of this variable, we are all working for the greater good.
THE NEXT STEP
If you’re ready to take the next step toward financial independence, I’m here to help. Working together we will develop a personalized financial plan based on your unique needs. Set up an initial consultation.
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The Financial Mistake You Don't Realize You Are Making?
I was talking with a family friend, who’s retired, about how she was managing her affairs. She felt confident that all was well. She and her husband had recently updated their will. I nodded with approval,
I was talking with a family friend, who’s retired, about how she was managing her affairs. She felt confident that all was well. She and her husband had recently updated their will. I nodded with approval, as its always a wise move to have your will reevaluated every so often. I’m curious (nosy) and try to be helpful, so I asked her more questions. After I asked about her stock/bond/cash allocations, we moved on to insurance. I asked about long term care, in case circumstances changed and they needed assisted living. She got real quiet and then all of a sudden blew up in frustration …
“I didn’t think to ask about that but WHY DIDN’T THE LAWYER??!! I’m calling him tomorrow!”
It’s a common revelation to people I meet with: On your own, you’ve engaged with several specialists but don’t have a financial advisor with a holistic view of your entire financial health to make sure everything is covered. Similar to a primary care physician who sees you on a regular basis and advises when to see a trusted specialist. Or a systems architect in software, who understands how the myriad components of a system interact.
You may have someone for stocks and bonds, a medicare guru, an estate lawyer, a real estate lawyer and an insurance agent … but do you have anybody that has the overall holistic view of your plan, tying everything together? Someone who’s family’s future, is directly tied to your family’s future success?
At Chamberlain Financial Advisors, we assess all aspects of your situation, providing solid advice throughout. We are fee-only, meaning we don’t get commissions to sell you products. Where we need experts, I facilitate the conversation. The ultimate goal is your overall financial health.
Do you have an advocate with a holistic view of your family’s financial situation? Are you DIY’ing it, but don’t really understand all aspects of the plan? Set up some time with Josh. Let’s get fully healthy.
