How to Diversify Your Employer Stock
One of the attractive remuneration benefits for many Australian expats working around the world is employee share plans. These could be in the form of Employee Share Purchase Plans (SPPs), or even being gifted shares as part of short-term or long-term incentive plans. Many companies discovered that by offering their employees shares, particularly with a vesting schedule attached, whereby the employee would only receive the shares over several years, that they were more loyal and had a greater incentive to see the company succeed.
While employee shares can be an excellent wealth creation tool, and a great way to further align your incentives with those of your employer by way of investment, it’s important to consider how this could impact your own financial plans. We all know the adage that we shouldn’t put all of our eggs in one basket, but just how often do we really apply this philosophy to our employee shares.
This week our team at Ally Wealth Management is exploring some of the key considerations that you should be thinking about and seeking professional advice on when it comes to your employee shares.
- Don’t ignore the tax implications
One of the most common elements that are often ignored is the tax implications for the shares that are being accumulated in the company, which can become quite problematic for expats working around the world. You may start off working in a low or zero tax environment, transition to a higher tax jurisdiction, and then repatriate to Australia. It’s important that you consider your future tax obligations, and plan for your eventual tax residency. The tax treatment can have a significant impact on your overall finances so it’s important to seek professional advice here.
- Review your overall asset allocation
It’s also important to regularly track and review your overall asset allocation. There are four key asset classes being:
- Equities
- Fixed Income / Bonds
- Property / Real Estate
- Cash
You should be aware of your own risk profile and preference, and review your overall asset allocation across your different investment portfolios to assess whether any changes need to be made and that you’re on track to achieving your financial goals. It is often a misalignment of risk profiles to asset allocation that can lead to poor financial decisions and outcomes over time. This is also what will have the greatest impact on your overall investment returns.
- Do you have any restrictions on selling the shares?
If you’re currently at a senior management level, or you’re expecting to be in the future, you may want to review whether this has any impact on your ability to sell or reduce your holdings in your company’s shares. There may be blackout periods near reporting periods, the minimum expected holding limits, or simply an inability to sell too many of your employee shares depending on the company that you’re employed by. If this is the case, be sure to do your homework early, and seek advice to ensure that you can still achieve your financial goals.
- Consider setting a limit for how much is too much exposure
If you can, we feel it’s a sensible idea to set a limit of how much of your overall net worth you’re comfortable holding in your employer’s stock. We often find that people forget that owning shares in your employer, in addition to your salary and bonus income being completely exposed to the company’s success results in a significant level of exposure to the one entity. Consider setting your limit and regularly tracking where you sit. If you find yourself approaching or above this level, then it may be time to take action.
As we outlined at the state, employee shares can be a great source of wealth creation, but it’s important to ensure that you have a plan to utilise this avenue sensibly and that it is considered part of your overall financial plans. If you’d like us to review your employee share purchase plan and the options available to you, please feel free to reach out to our team.
Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.
Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.
Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.
General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.
