You can read Part I here….
Tax Nerd Trigger Warning: Tax assumptions are extremely basic here, please don’t berate me.
In this piece I want to discuss the common questions and issues with regards to pre-IPO companies that issue stock option compensation to early employees.
Once the company has gone to market and hired a few dozen (or hundred) employees, ISO and/or Non-qualified stock options (“NQOs”) are very popular forms of equity compensation. From an economic standpoint, this just means the grant price (the strike price) to buy the stock is fixed, even if share value increases. …
Equity compensation is a broad category of various ownership grants given to employees, founders and investors throughout a company’s lifecycle. If managed properly, equity compensation can provide an economic windfall that turbo charges a wealth plan.
But equity compensation can be confusing and intimidating. Reviewing stock options and restricted stock units (RSUs) can feel like walking through a minefield of complex legal documents, tax rules and what-ifs. Common questions I hear from clients include:
· What do I own?
· What is it worth?
· Do I owe any taxes?
· What is AMT?
· Should I exercise/sell/hold?
Adam Robinson is a macro global advisor to some of the largest hedge funds and ultra-high-net-worth family offices. As a child, he was a chess prodigy tutored by the legendary Bobby Fisher. As a young adult, he created the now ubiquitous Princeton Review SAT prep course — which he later sold for a handsome reward. Based on my admittedly limited knowledge of Robinson, his “magic” lies in developing mental models for key decisions to maximize performance and efficiency. He’s like a chess master for life.
In a recent interview, the interviewers asked Adam what types of “bad advice” he often…
Charlie Munger is Warren Buffet’s right-hand man.
In 1995, Munger gave a now famous speech at Harvard titled “The Psychology of Human Misjudgment” regarding common flaws in human decision making, and why we should be weary of them. There is a great shortened, animated video of that speech here.
Using good judgment to make smart decisions is paramount to successful results, and financial decisions are no exception. It is well documented that investor behavior, defined as the mental processes and emotions that cause investors to buy or sell, is the decisive factor in long term results, rather than knowledge…
Just a Quick Note on Annual Investment Outlooks…
Each year, seemingly thousands of financial institutions, professional investors and everyday financial advisors provide a forward-looking outlook for the coming year. These outlook papers serve as forward-looking predictions for the market and economy. Ostensibly, investors leverage these insights to position their portfolios for success.
There is no shortage of intellectual geniuses in the investment community. For decades, the brightest, most ambitious go-getters from all over the globe have flooded into asset management firms in search of their investment fortune. I won’t pretend to be half as smart as these folks. …
There are two stages of retirement planning — accumulation and distribution. Accumulators are those still working (and who we’ll discuss here). Distributors are those that are no longer working and live off their assets and passive income streams (to be discussed later).
Here’s a graphic showing the lifecycle of a good financial plan from working years (accumulation phase) to retirement years (distribution phase).
A few months back I listened to a very popular podcast for financial advisors, where the guest was an advisor that experienced great success at a young age as a traditional Wall Street broker but had since moved into the fiduciary world (the better world of wealth management). After decades of advising thousands of clients, he made a comment that greatly resonated with me regarding investment choices.
He said that with less than $500k in equity exposure, folks should just buy Vanguard’s Total World Stock ETF for equity exposure.
From the podcast transcript:
And with these younger people, I’m always…
I’ve already explained the economic and tax advantages of HSAs. Now, let’s talk about how to optimize HSA funding with an IRA rollover to provide a “cushion”, some resources for where to spend your HSA funds on everyday “health expenses”, and how to be a smarter healthcare consumer.
Funding — IRA to HSA Rollover
Married couples can contribute up to $6,900 annually to HSAs. Generally, open enrollment season is in October or November, but benefit changes technically don’t go into place until January first of the following calendar year. …
Competent investment management is a commodity service — and this is no secret. For the past decade, institutional and retail investors alike have chosen low-cost passive index funds over higher cost actively managed strategies because active managers can’t consistently beat the index, but still, charge high fees for trying. Here are the numbers for active managers vs. the index from a Wall Street Journal article:
Nobody likes paying high premiums for family health insurance coverage. If premiums seem very high, it’s because they are. In fact, the cost of family healthcare premiums has increased 55% in the last ten years. What was once a negligible payroll deduction is now a major household expense that could very likely exceed expenses like real estate taxes, car payments or mortgage interest.
But ask yourself — why continue to pay such high premiums if you don’t require significant ongoing health services? …
DIY Financial Advice