When a client’s company stock takes a hit, the message I get that afternoon is usually a question about their future. Can I still make my goals work? What about the house we’ve been saving toward, or the renovation we finally committed to?
I understand why the question arrives that way. The clients I work with often have built their wealth by working at their company, so when their company’s stock takes a hit, it lands personally in a way a broad market dip never does. And for many, the same company that signs their paycheck also makes up a meaningful portion of their portfolio.
To add to that, tech layoffs have been in the news steadily, questions about AI replacing roles keep surfacing, and the cost of living has climbed alongside both. What I’m hearing from clients, including clients whose plans are in good shape, is a general sense of less security around their finances.
During a time of change like this one, having financial security is key, because it lets you put your energy toward building the next phase of your life, instead of spending that energy being fearful about your financial situation. And as humans, we do not tend to make good decisions when we operate from a state of fear.
The following strategy won’t tell you where the tech market is heading—it just makes sure you’re asking the right questions and are ready if a layoff or stock dip hits.
The Concentration Risk Behind Equity Compensation
If a good portion of your net worth is sitting in your employer’s stock, that’s often a sign of something going right. Equity compensation can be a powerful wealth-building tool, and the clients I work with showed up, did excellent work, and were paid in shares of a company that grew.
But having your employer pay you stock as part of your compensation, plus your salary, adds risk on top of risk. You’re relying on one company both to cover your paycheck and to perform well with its stock, and those two things tend to move together. A decline in the share price can show up in the same season as a reorganization. If your expenses depend on selling shares, that’s the moment you may be forced to sell at a price you’d never typically choose.
And that’s where we come in. Research consistently shows that combining a diversified portfolio with the support and guidance of an advisor helps you set yourself up for long-term financial success. We work alongside you to broaden your investments so your goals aren’t tied to a single ticker. Watching a stock dip is never fun, and when your net worth isn’t locked in one place and you have a dedicated cash reserve, you can navigate market swings with confidence instead of stress.
Related: The Double-Edged Sword of Managing Concentrated Stock
– Why the Right Amount of Single-Stock Exposure Is Different for Every Person
When it comes to stock exposure, what feels comfortable for one person doesn’t feel comfortable for the next, which is the reason we personalize your plan rather than applying a formula to it.
For example, one of my clients holds more exposure to an individual stock than I would typically recommend. We arrived there through many planning and investment discussions together, and she’s been clear that she has a higher appetite for risk in that portion of her portfolio. So, we carved out that piece and set a target percentage of her net worth for it. If the position grows above that target, we already have a plan in place to diversify and sell, so the risk doesn’t creep higher than she’s comfortable with. Everything outside that carve-out is diversified.
We have extensive conversations with clients about what one stock can make or lose, so you understand the investment experience you may have and can make an informed decision with your whole plan in front of you.
For Tech Employees Who Feel Uncertain About What’s Coming
If you’re somewhere in the messy middle right now, unsure whether your role is safe or whether your RSUs will recover, there may be more within your reach than you realize. I recommend two useful steps for individuals in this situation.
- First, map out a plan for multiple potential scenarios. If your stock bounces back, we might sell into that recovery on a set schedule, diversify the proceeds, fund the goal you’ve been putting off, and plan for the tax bill. If the stock doesn’t bounce back, we might lean on your cash reserve rather than selling shares at a low price, and look at whether the lower basis creates any planning opportunities. Deciding your next action while the outcome is still open means you have a goal attached to each path, and something that seems out of your control becomes something you’ve already planned ahead for.
- The second piece is building a right-fit cash reserve. Knowing how many months of essential expenses you could cover without a paycheck is always good advice, and it’s especially important if you’re in the tech space right now. In fields where job searches are running long, or for someone thinking about starting a business, having a year or two’s worth of cash reserves often provides a strong safety net. Of course, your “right” amount depends on your specific situation and what amount makes you feel safe, and it’s a number we can pinpoint together.
Neither of these steps requires knowing what happens next, which is the point of them. We can put these in place while you still have a paycheck coming in, and the pressure is lower.
One of the best ways to quiet financial fear is shifting your focus toward what’s next. Putting that energy into staying ahead of industry trends, expanding your skill set, or simply reconnecting with your network keeps you in a position of confidence, so you can navigate your career from a place of choice, not worry.
What Happens If You Get Laid Off From Your Tech Job?
If you’ve recently been let go from your tech job, I’m sorry. It’s a lot to hold at once. I want you to know that you don’t have to sort through it all alone, and that we have a sequence of steps we can walk through together to help get you to your next role:
- We confirm your current cash against your essential expenses. Do you have enough cash to cover your essential expenses, mortgage, and so on? The obligations that don’t pause are top of mind before anything else.
- We build a budget for your life without an income. We look at what expenses you can cut right now and what stays. The aim is trimming discretionary spending where it makes sense without making your life miserable.
- We count your runway and adjust accordingly. How many months does your cash cover, and how long do you think it will take to land a new role? When those two numbers don’t line up, we talk through whether generating more cash from selling investments makes sense.
- We work through the near-term benefits questions. COBRA costs are usually given pretty soon after the layoff notice, so we can plan around a known figure. If you’re married or in a domestic partnership, we’ll explore whether getting on your partner’s plan would reduce the cost. And if you have an FSA balance, it needs to be spent before you leave the employer, or the benefit is lost.
Related: Click here to read “Leaving Corporate America: Deciding What’s Next for Your Life and Wealth”
– A Note on Reviewing a Severance Offer
If you’re considering a severance offer, I recommend having an attorney review any package you’re offered. What I can speak to is the position you’re standing in when you review it. With an appropriate emergency fund in place, you’re not in a rush to accept a bad severance, which gives you time and leverage to work with an attorney on an exit package.
Having the cash to take your time doesn’t change what’s offered, but it changes whether you have room to consider it properly.
Financial Planning Gives You Room to Think Clearly
A layoff or a falling stock price is not something we can plan away. What financial planning for tech employees can do is change what either one costs you. When your goals aren’t tied to a single company’s performance, and when you have enough cash on hand to cover the months in between, you get to make your next decision from a position of steadiness rather than urgency.
If you’re already working with us and something at work has shifted, reach out. We’re glad to walk through the scenarios with you before you need them.
And if you haven’t connected with our team and are holding company stock or watching your industry with some unease, we’d welcome the chance to hear where you stand and show you what this planning looks like in practice.
Still exploring? Click here to learn more about our philosophy and our people.
Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein.