Over the years, I have talked with a lot of people who have been the recipients of significant stock options—or grants of stock—from their employers. To many of these people, the fact that this compensation led to a concentrated position was a real eye-opener. Some of the people I talk with understand the risk involved with a concentrated position while many initially don’t, but one thing that I’ve heard with somewhat concerning frequency is people’s reliance on anecdotal evidence from colleagues about how to handle stock and/or options when making a personal financial plan.
While an instinctive resonance with the situation of a peer may be a natural, entirely human instinct, these decisions should on no uncertain terms be made based on you, your own personal situation, and your goals for the future. (For related reading, see: Top Tip for Financial Success: Start Planning Early.)
When Not to Share in the Workplace
Many people who find themselves considering how to deal with generous stock grants or options also work closely with other people within the company that provide these benefits. In many cases, the nature of these relationships leads to a convivial camaraderie among team members. Your colleagues in comparable positions at your employer may well have come from similar backgrounds, and it is natural to assume, based on the nature of your work and theirs, that their compensation is comparable to yours if your roles are very similar.
You may even have a personal relationship with your closest team members that has led to discussions about compensation. These types of conversations can often lead to sharing of opinions about how to best handle stocks and options.
The first thing you should know about financial advice from colleagues is that it is a wonderful aspect of human nature to want to use your own experience to help others you care about. When your coworker tells you what they plan to do with their stock options, they are very likely telling you what their plans are because they value your relationship and want to try to help you. The second—and most important—thing you should know is that you should never treat this type of suggestion, no matter what your relationship with the person offering it is, as information about how you should make your own financial plans.
Even if you have a great relationship with your colleagues, trust them completely, and have reason to believe that your compensation is roughly equal, their financial circumstances, needs, and long-term plans may be radically different from your own. Your goals for retirement may differ significantly, your tax considerations may be dissimilar for many reasons, your families may be entirely unlike one another, your current cash flow requirements may be as different as night and day, and your tolerance for risk may fall in a totally separate category from theirs.
No matter their good intentions, and even if your compensation packages were hypothetically identical, what may be good advice for them may not be for you and your family. (For other investment-related reading, see: Startup Crowdfunding Rules: What You Should Know.)
What You Should Base Your Plan on
The bottom line here is that you should always make sure your financial plan is based on you, your unique situation, and your goals for your future. No matter what you do for a living or where you work, you will always have co-workers you consider friends, and those people will often try to give you advice on any aspect of life you discuss with them—where to eat, what kind of car to buy, who the best contractors for kitchen remodeling are.
Whenever you form a bond with someone, you can expect that some form of suggestions based on their own experiences are not far behind. So by all means, read about that new restaurant, test drive that car, and get a quote for your new kitchen, but make your own decisions based on you and your life.
Financial planning with your best interest in mind should follow the same model. If you don’t feel comfortable making these decisions alone, talk with a financial advisor who operates as a true fiduciary. This way you’ll know that the advice you receive will be based on your real situation and unbiased by profit motives or sales incentives, as true fiduciaries are bound by law to act only in the best interests of their clients. (For related reading, see: The Virtues of Being Financially Organized.)