Taking Advantage Of Stock Benefits - Deepstash

Taking Advantage Of Stock Benefits

While switching jobs or even considering a new job offer, one has to understand what the different kinds of equity compensation are.

Stock options allow an employee to purchase shares in the company and go through a lock-in period of a certain number of years before the shares are buyable to them.

  • Stock options don’t need any upfront money from the employees, and if the company performs well over the years, they gain substantially.
  • If the company stock dips, the stock options become worthless.

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Free food, Beer taps and ping pong games in the break room do not help employees feel connected with the company's vision, mission or direction.

Employees prefer equity/stock compensation, the non-cash payout they get by being allocated restricted stock options. 

Employees then become partial owners of the company, vested into how it performs, increasing their motivation to be more productive and effective.

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  • Similar to salary negotiation, employees can negotiate equity compensation while switching their job.
  • Employers prefer giving stock over salary, as stock compensation is subjective to the performance of the company.
  • Some senior-level positions also see a percentage of salary provided in RSUs every month.

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  • One has to evaluate while agreeing to take equity compensation, as having too much in one basket is risky.
  • Keep the balance between cash savings and stocks/bonds using a ratio according to your risk appetite, diversifying your investment every year.
  • During the time of vesting your stocks, ensure that they are not more than 10 percent of your total investment portfolio.

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RSUs work like stock options, with one difference: The employee does not have to buy them. 

As the company goes public or reaches a solid valuation, it offers RSUs to employees at a rate that will not dip during the ‘gestation period’ of a few years.

Employees can cash in the RSUs after the stipulated time at the price decided earlier, so there is no surprise or disappointment.

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  • Consider the tax efficiency of buying and selling stocks options provided by the employer, by consulting your accountant.
  • Sell the company stock using the Employee Stock Purchase Plan(ESPP) which usually entitles you to the discounted price.

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A diversified portfolio ensures that your capital is spread across a variety of investments. It ensures that you are not reliant on a single investment or industry for all your rewards. Fortunately, there are multiple asset classes to invest your money into, such as equity or bonds. It reduces your exposure to market risk and smooths out the peaks and valleys of investment trips. As a result, diversification is the guidewire that stops your investment portfolio from going off the rails especially when there’s a downturn in the market.

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Every investor’s principal goal is to reduce all possible investment risks while simultaneously increasing investment opportunities. Learn all about diversification and untold secrets. This will help anyone start their investment journey.

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Negotiation starts earlier than you think

Every recruiter worth their salt will ask about your salary expectations when you first start interviewing. Do not give them a number. What to do instead: Ask for the range they’re budgeted for the role.

How to say it: “Can you tell me the salary band for this level? Happy to let you know if it’s within my range, and we can discuss specific numbers later when I’ve met the team.”

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The January Effect

It is defined as a perceived seasonal increase in stock prices during January.

Analysts generally attribute this rally (a period of sustained increases in the prices of stocks, bonds, or related indexes) to two factors.

  1. A price drop happens in December - when investors prompt a sell-off due to tax-loss harvesting to offset realized capital gains - followed by an increase in buying in January.
  2. Investors use year-end cash bonuses to purchase investments in January.

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