Let’s say you work for a public company and your RSUs are about to vest, but the stock price has fallen a lot. Even if you’ve been comfortably following a strategy when your shares vest, are you feeling a wee bit less certain about the strategy right now?

The core questions are: What should you do with your RSUs when they vest now? Sell them? Hold them in the hopes that the stock price will recover? Should you change the approach you’ve been following up until now? Let me give you some thoughts on how to approach this financial dilemma.

Recommended General Strategy

With RSUs in public companies, my general strategy is to sell most or all of the grant as soon as possible (ideally on the date of vesting or, if that’s during a blackout period, as soon the trading window opens). There’s no tax reason to keep them any longer than that (they are taxed as ordinary income the moment they vest...there’s no escaping the tax code).

Selling RSUs as soon as they vest feels good...when the price is high. But now your RSUs are vesting at a low price for your company stock. It’s a little painful to think of selling them at that low price. Should you change your strategy?

If you’ve been following a strategy up until now, think really hard before changing it just because the external circumstances are different. That said, it is reasonable to re-examine the reasons for the strategy and consider whether you need a new approach.

We have no idea what stock prices are going to do when and for how long. A big drop in stock price scares us, and when that happens you pay more attention to that fact.

How To Think About What To Do After The Stock Price Fell

How should you handle your RSUs now, as the vesting date approaches and the shares are delivered to your account? There is no single answer. And, to be honest, there was never a single answer.

Maybe we felt it was a simple question to answer for the last 10 years because the stock prices were always so comfortingly high.

But the reality has been the same this entire time: We have no idea what stock prices are going to do when and for how long. A big drop in stock price scares us, and when that happens you pay more attention to that fact.

Questions To Ask

Ask yourself the following questions in an attempt to "triangulate" the best strategy for your RSUs going forward:

Do you need cash? Seeing your company’s stock price fall and co-workers get laid off makes you realize just how important cash is. Do you have an emergency fund that can get you through six months of expenses? If not, those RSUs might just get you there and then your financial situation will be much safer, much more resilient.

After all, RSUs are really just a cash bonus, in the shape of company stock. If you got a cash bonus of $5,000 right now, would you rush right out to buy company stock with it? Or would you keep it as cash? If it’s the latter, then sell your RSUs.

Look at the company’s stock price. When was it last at that stock price? You might be surprised to see that the company was last at this price not that long ago. Maybe mid-2019? If that’s the case, ask yourself: Were you willing to sell the company shares you have in mid-2019 at that stock price? If so, why are you unwilling now?

How much of your financial net worth is made up of company stock? The bigger the percentage, the riskier it is to keep the stock. Let’s say your net worth is $1,000,000. If only 5% of your net worth is made up of company stock, then if the stock falls 20%, you’ll lose $10,000 (5% x 20% x $1,000,000).

If it makes up 20% of your net worth, then you’ll lose $40,000 (20% x 20% x $1,000,000). That argues for continuing to sell the RSUs as they vest, if your existing holding of company stock is already quite large.

Remember that when you sell, even in a rush to generate cash for other needs, you still must follow all company rules, such as those related to insider trading and window periods.

Example of impact of stock price drop for $1 million net worth

Stock as % of net worth

% stock price drop

Total $ value decline (%)

5%

20%

$10,000 (1%)

20%

20%

$40,000 (4%)

Is this company stock “icing” on your financial cake? Or is it the cake itself? If you need the money wrapped up in this company stock, then you really can’t afford to take many risks with it (holding it and hoping for a recovery is a risky maneuver). If your life and your goals can afford to lose that money, then you can afford to take the risk of holding on to it.

How you answer key questions will help you make a decision that comfortably fits you.

If you don’t sell them now, when will you sell? That’s perhaps the hardest part of market timing. If you don’t sell at this price, at what price do you start selling again? If you don’t sell as the RSUs vest, then you are definitely trying to time the market. This only has a chance of working well if you have objective rules that will dictate when you will sell. What are yours?

Do some thought experiments:

  • Let’s say you don’t sell your RSUs as they vest. You hold the stock in the hopes that the stock value will recover. In 12 months, the stock still hasn’t recovered its value. In fact, it’s worth less than it is today. How would you feel?

    Example: You hold your company stock because $52 (today’s price) is just too painfully low to sell at. Over the course of the next year, you watch the stock as it continues to lose value. But maybe you have a solid cash emergency fund already in place. In 12 months, the stock is now at $38 per share. How would you feel?

  • Let’s say you do sell your RSUs as they vest. And then a year from now, the stock price has recovered and then some. The stock price is above where it is today. How would you feel?

    Example: You sell your company stock at $52. You have that cash in the bank. You have that cash to fall back on if economic times get rougher. Then in a year, it’s back up to $75. How would you feel?

Either situation—holding or selling at vesting—could bring you a mix of loss, regret, anxiety, fear, and feeling stupid. Do you feel yourself pulled in either direction more strongly? How you answer these questions will help you make a decision that comfortably fits you.

Meg Bartelt is a CFP® and the founder of Flow Financial Planning in Bellingham, WA, focused on financial planning for women in their early to mid career in the tech industry. This article was published solely for its content and quality. Neither the author nor her firm compensated us in exchange for publication of this article.