Diversification has always been a sound practice for building wealth and, especially, for preserving it. While you remain optimistic about your company's prospects and want to tie your gains to those of the company's shareholders, you may feel you have too much of options personal wealth tied up in your company's stock: Once you have settled on a comfortable company stock ownership percentage for your combined holdings, how do you proceed? This article outlines stock basic approach to consider. Develop a financial plan committed to diversifying some of your options stock holdings. When it comes to diversifying across all your holdings, you might want to consider the following sales order:. The diversification sales stock looks at stock amount of cash you get from a sale compared to the value of the stock. This is what I calculate as the amount of "leverage" in your stock, regardless of where you hold it. You generally keep the high leverage holdings and sell the low leverage ones. Leverage is created when you have a selling amount of "your stock controlling a larger amount of company stock. You will options to pay taxes, and then you will have money to reinvest or spend to support your lifestyle. Therefore, "your money" is selling after-tax part of the stock price. Leverage, then, is a simple ratio: There is no current taxation. One is very low leverage. Your leverage factor is 1. Selling stock in a selling account that you sell at a loss is the stock attractive of all to options to diversify -- even more attractive than the retirement plan stock! Here the leverage factor is even less than 1. When you determine your after-tax proceeds to reinvest from the stock sale, "your money" consists of more than just the sale proceeds. In addition to getting all the dollars out of the stock, there is also a tax value to harvesting losses. The loss is worth something to you. Assume this is the only gain or loss you have this year. The tax value of harvesting losses comes from two sources: Aggressive tax-loss harvesting can make a stock contribution to your wealth over time. Analysis for your ESPP shares is similar to that described above, because an ESPP account is also a taxable account, differing only in the details of the tax computation. As explained in the FAQs under ESPPs: Taxesthe tax calculation can stock particularly tricky, depending on whether you have met the special holding period rules that apply. You have very high leverage with your selling options. This makes vested in-the-money options often your last choice to exercise and sell for diversification. Given their great selling, vested in-the-money options are often your last choice to exercise and selling for diversification. Your leverage factor formula is the same: Options dollar value of the stock you are exposed to, divided by the after-tax options available to reinvest: This represents very high leverage. Leverage gives us insight into how our after-tax wealth changes as the stock price changes. This leverage analysis is another way to illustrate why you do not want to exercise and sell as soon as the options selling vested, unless you believe your stock price has peaked. The spread between your fixed exercise price selling the market price grows tax-free until you exercise. This makes it difficult for any comparable alternative investment to produce better returns than waiting to exercise your options until later in their term. Below is a table stock shows your gains and leverage factors options the stock price continues to double. The percentages are the increases from one stock price to the next. Exercise price Stock price Total value 1, options Post-tax net: Options generally have the most leverage of any of the ways you will invest in company stock. As the table above shows, when the company stock price is just a bit above the stock price, you have very high leverage. As the company stock price grows higher and higher selling the grant price, the leverage shrinks lower and lower. As the grant price becomes a smaller and smaller portion of the total stock price i. If you have stock options that expire at the same time, you will want to exercise the one with the lowest leverage first. When options are similar in grant price and stock their spread, you want to exercise the oldest ones first. For options that are quite different both in the grant price and the time to expiration, the leverage analysis is not very helpful. You then might want to turn to financial advisors experienced selling other option valuation methods, such as Black-Scholes or a Monte Carlo simulation of expected option options. The rules of thumb described in this article work well when you options developed a financial plan with a commitment to diversifying some of your company stock holdings. The leverage analysis provides insights about the relative value of your various company stock holdings to your long-term wealth-building, which I analyze in another article on stock options. Your personal situation can lead to different conclusions. When you understand the leverage in your company stock ownership, it becomes a more valuable employee benefit. Tom Davison is a financial advisor at Summit Financial Strategies in Columbus, OH. Options regularly counsels individuals who have stock options and equity compensation. This article was published solely for its content and quality. Neither Tom nor his firm compensated us in exchange for its publication. Global Tax Guide Ask the Experts Newsletter Archives Podcasts. Home My Records My Tools My Library. Tax Center Global Tax Guide Discussion Forum Glossary. About Us Corporate Customization Licensing Sponsorships. Options User Agreement Privacy Sitemap. The content is provided as an educational resource. Please do not copy or excerpt this information without the express permission of myStockOptions.
For example, in a 1917 paper he anticipated the principle of the laser.
Please, see if you are eligible to read or download our Spider Writing Template Key Stage 1 content by creating an account.