We strongly recommend you review your vested stock options before year end for possible exercise.
Here are a few reasons why:
1. The final quarter of the year has historically been an excellent time for appreciation in the capital markets. Selling high always sounds easy, but it is often hard to do, especially with the company you work so hard for and often become slightly emotionally attached to as well. Seasonally, the end of the year may be a good time to review and possibly sell a portion of your options.
Stock Option Review Time
2. Taxes are going up. While we cannot predict where rates will end up at this time, we feel strongly that rates will go up. Recall many stock options flow through to your ordinary income or end up as a short term gain. Rarely do stock options gain a favorable tax bracket treatment and with many tax brackets rising, it might be a good time to review your option exit strategy. We never recommend letting the tax tail wag the investment dog, but this is one of several items to consider and review at the current time.
3. Capital Market expectations are not extreme at this time or looking into the near future. With our country coming out of a very deep recession, labor pains, and the above mentioned tax increases, extremely high flying capital markets at this stage of the recovery may not be in the cards.
In closing, we wanted to mention an interesting saying; “Stock options are a form of compensation, remember to carefully manage them this way, they are not given to you as a present to never open/sell. Most stock options have very little strings attached and never know your feelings about them.”
Please see our Q 4 2010 Newsletter for greater details including some of basic rules of handling company stock options.
Have A Great Day!
JK
Why Source of Funds May Determine Entrance into Capital Markets
Before we jump into this post we know that in 5 to 10 years our starting point hardly matters.
We also know that we’re all human and we like to get off on a good start in anything that we do, especially when it’s dealing with our hard earned capital!
What follows is our belief of the best possible way to get started on good footing, and keep a positive investment allocation.
There are always outliers and unique events – this is a template, and loosely the starting point for funds entering the capital markets … but by no means a written in stone … exact map.
Let’s start with the easy
New investment dollars that came from … say the backyard … under your sofa … your overfilled emergency fund, or some other super safe and stable asset class . … almost certainly should be work into Capital Markets over time.
Depending on the situation, the amount, the time horizon … the time frame may vary from months to quarters or even longer depending on the situation to gain entrance to the Capital Markets …
A typical scenario would be to divide the time frame into equal parts and allocate over that period of time.
The goal is to take advantage of the ups and downs upon entrance into the Capital Markets ….
Funds such as 401k rollover’s, current investment portfolios that are moving from one pocket to another most certainly do not need this staggered entrance into the capital markets as they were invested already.
An accurate statement can be “If it just came out of the capital markets it can go back into the capital markets” even though it may be cash today.
Here are the gray areas
Of course there are gray areas that need judgment…
A large block of stock options sold. The funds where IN the Capital Markets but depending on the size and the situation, it may not make sense for these funds to be moved directly back into the capital markets all at once.
A sudden liquidity event such as the sale of a business – yes in essence it was in a investment that had volatility similar to the capital markets, but in most cases, risk reduction is desired and a staggered entrance along with a conservative allocation may be the best.
Inheritance..
It all depends on the form?
Some inheritance come in the form of cash … others may come in the form of investments that are already invested – again depending on the situation, it may make sense to stagger entrance, or it may be just fine to continue the allocation or even re-allocate in one swoop.
Bottom Line, there is no exact way for all situations, but there are ways to go without raising the blood pressure!
Have a Great “Good Entrance Capital Market” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
Share this:
Like this:
Leave a comment
Posted in General Financial Planning, Investing/Financial Planning, Market Comments, Why
Tagged Dollar Cost Average, Emergency Fund, Inheritance, Source of Funds, Stock Options