For many successful executives, one of the biggest financial risks isn't what they don't own. It's what they own too much of. This could be in an employee stock purchase plan, company stock options, etc. Mike Switzer interviews Stephanie Vokral, a certified financial planner with Investra in Columbia, SC.
TRANSCRIPT:
Switzer: Hello and welcome to the South Carolina Business Review. This is Mike Switzer. For many successful executives, one of the biggest financial risks isn't what they don't own and it's what they own too much of. This could be an employee stock purchase plan, company stock options, et cetera. Stephanie Vokral is a certified financial planner with Investra. She joins us by phone now from her office in Columbia to help us with this topic. Stephanie, welcome back to the program.
Vokral: Thanks for having me again, Mike. It's great to be here.
Switzer: So you would think after the Enron disaster, of course, I guess that was so long ago, maybe people don't remember that, about having too much of your assets into the company stock.
Vokral: Yes, that's right. It's a big risk. And when I'm talking about employees and executives, those people who have accumulated possibly even a seven figure position in a company stock through stock options, you know, employee stock purchase plans, or even just simply holding shares after vesting and on paper it feels really great. The stock has done well, the company is thriving and you know that business better than most people. But there's a hidden risk that I'm not sure people talk about that much. And that hidden risk is, you know, your paycheck comes from that company, your bonus and your benefits come from that company. And if then a large portion of your net worth is invested in that same company stock, then you've concentrated both your income and your wealth in one place. Your company helped create your wealth. Diversification helps you to protect that. You might not be at a tech company like Google or SpaceX, but the same concept applies if you're at Boeing or Dominion. You know, having worked with executives across a variety of industries, I often see the same challenge and that is they know that they're over concentrated but they're hesitant to act. And I think sometimes it's because they're worried about the taxes or you know, that they'll sell it and the stock immediately goes higher, which is a really common reaction. but a plan helps you get unstuck.
Switzer: All right, so let's talk about making this plan then because you know, maybe a more recent example, it might refresh some of our listeners memory is a great recession, you know, not too long ago in 0809 and you remember Wachovia stock, people thought that was gold, you know, as a local, you know, southeastern bank, and that didn't turn out too well. So what is the plan? Because people do worry about taxes. So how do we diversify this position.
Vokral: So for restricted stock units, sometimes you'll hear people say RSUs. It's important to remember that once those shares vest, holding them becomes an active investment decision. And most people don't realize that. So I often ask clients, if your company paid you cash bonus today, would you use every dollar to buy more of that company stock? And if the answer is no, which it usually is, then that tells us something. So, so I typically recommend that clients sell their RSUs once they vested. They're getting that as ordinary income for taxes anyway. So just pay the tax, sell it and diversify. For stock options, you know, strategically exercising or selling over a period of years potentially can help, you know, manage taxes while gradually reducing risk at the same time. So for those highly appreciated stock positions, there are some additional strategies available including tax loss harvesting, exchange or sometime called swap funds for qualified investors. There's also direct indexing or options based approaches designed to help manage risk. And in some cases what I find is the best diversification strategy is, can also be a philanthropic strategy. Use donor advised funds or charitable remainder trust to turn highly appreciated stock into a tax efficient tool both for family wealth planning and the charitable impact. So this is where your comprehensive financial planning becomes much more than just investment management. I mean the goal is to prevent a single stock from sidelining your retirement, you know, your legacy and your family's future.
Switzer: Stephanie, great information as always. Thank you so much for your time today.
Vokral: Yeah, you're welcome, Mike.
Switzer: Stephanie Vokral is a certified financial planner with Investra. She spoke to us by phone from her office in Columbia. Remember, you can hear this show again at our webpage, SouthCarolinaPublicRadio.org and and you can find us wherever you find podcasts with the South Carolina Business Review. This is Mike Switzer.
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