What I currently thinking is that I would make it same as overall portfolio allocation.
Since I don’t do single stock, I would not keep any equity in my employer for a public company (that was my strategy when I was vesting RSUs).
For investment in private company, it seems like a single stock bet, with the difference that you get insider access that you wouldn’t in public markets, I’d probably go for it after due diligence (?).
For alt-investment, I think it’s a matter of portfolio allocation, up to 10% might be reasonable (?) as it provide diversification over an equity heavy portfolio (assuming it’s not just a long equity fund).
The precondition is that the ESOP is decently attractive (e.g. 30/50% top-up after holding for 3 years).
If it is - and the likelihood of me wanting to stay there for another X years is relatively high - I’d say max 5%.
If it isn’t - it’s 0 (beyond its part in the overall ETFs).
(And I sell as soon as possible upon vesting for the top-up)
In long run concentration is not a good idea except for lucky few. However people who have benefited from exactly that would not choose to diversify due to recency bias
For example Goog, NVDA holders would have been upset for continuously selling their RSUs every year for last decade. But it would have been the rational choice indeed.
Unless someone have a magic ball to say their employer stock will continue to outperform the market , they should sell vested RSUs and invest broadly.
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For private companies maybe it works differently as they might be valued at much different multiples than public market . So there might be something but still big risk
Some people have mandatory holding metrics related to their position to signal ‘skin in the game’ to investors.
Setting that aside, in general I’d say it’s risky to be overconcentrated and even more so if it relates to your employer: imagine the scenario of a bad market => weaker revenues => lower stock price (you take a hit) => company starts restructuring to protect profitability (you risk another hit from losing your job).
There are cases to be made to stay put of course if you have high conviction in the company (e.g. with insider insights).
Perhaps the best approach is: assume you had to liquidate your entire portfolio at gunpoint, and a day late could start investing from scratch again, would you then choose to overconcentrate in your employers stock?
While it seems to generally be accepted to be the reasonable thing to sell asap, I’ve read some compelling arguments regarding the emotional and relationship side to nevertheless keep some and I think that’s what I’d personally do if I were ever in the situation and if I believed in the company.
So to answer the question of what would I do: sell most, keep some.
Keep enough that you won’t have regrets if the product you build succeeds. I usually keep around 25-33% of the RSU if possible (selling half of it after taxes) but only if I actually believe in it.
Emotions tend to not be a good counsel when it comes to investing.
Relationship side… reminds me of a conversation I had with the CHRO of a company I worked for and where I had mandatory holding of certain amounts of stock. I asked him whether (once I met those limits) it would be frowned upon if I were to sell stock. He was clear: follow the policy and for the rest do what’s in your best interest… if the Board would want to limit things further, they should adjust the policy.
Nonetheless, for a looooong time I sold nothing - thinking “it’ll look better if i don’t and may help career-wise” - nonsense of course. Sold it all once I was terminated.
That was my strategy on liquid tech stock, always sold on vest + diversify. In hindsight I “lost” a lot, but I still think that was the most rational move. Also if I truly believed in the stock, I’m not sure why it should have been my employer, rather than any of the other tech stocks or a tech ETF.
(Also keep in mind that even if you sell on vest, you still have 2y of exposure on average on your RSUs, based on the delta between grant and vest, so there is already significant exposure esp. for more senior roles where stock based compensation starts dominating).
It depends on the instrument. I’ve had an employer who borrowed money from their employees at a rate they presented as better than bank rates. I’d mostly stay away from such instruments as they are not insured by esisuisse (so less secure than bank deposits) and taking risk with my cash for a few % more interest isn’t what I keep cash for.
My guess is this isn’t the kind of arrangements you are thinking of.
Let me throw a curve ball - when you work for a company you tend to (depending a bit on your role) get insight on industry dynamics and can sometimes see e.g. a (up and coming) competitor with a much stronger trajectory or a one which is listed but very undervalued. There may be contractual constraints to buying a stake, but these can be some of the best opportunities to invest (also after you leave).
Generally here, you don’t really have a choice. You mostly cannot buy or sell, so your stake is defined by whatever your contract/your employer gives you.
This would seem to be the reasonable approach, give or take a bit if owning your employer’s stock boosts your work enjoyment/motivation.
Of course, if your employer has a share participation plan or gives you stock options where stock can only be sold at a later date, that can skew things to where a rebalancing as per your overall portfolio allocation simply isn’t possible. In that case I would lean towards looking at the excess as a bonus which should be segregated from the investment portfolio and categorized as income.
if you are a believer of home bias, this could also be considered a form of home bias. While it’s not a rational decision, I would think about the regret you will have if you sell and your peers benefit from a 5x exit.
a maximum 5% -15% of your portfolio should not be catastrophic if anything goes wrong, but it’s a very personal decision.
I am also in this situation and I own shares of a public traded company. At the moment, it represents 8% of my portfolio but I am targeting 15% max. I will sell some later and purchase VT on ibkr to balance it.
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