Turning Stock Grants Into Strategy: Keep It, Spend It, or Grow It

Key Points

  • The first step in maximizing equity compensation is mapping it to your personal financial plan.

  • A practical framework is to sort every share or option into one of three buckets: keep, spend, or save (invest).

  • Once each bucket has a purpose, next-level questions—when to sell, how much tax to withhold, and where to invest—become far easier to answer.

If you’ve been granted incentive stock options (ISOs), non-qualified stock options (NQSOs), restricted stock units (RSUs) or similar awards, you already know how quickly excitement can morph into anxiety. Tax rules, market swings, and vesting schedules create information overload, and overload breeds paralysis.

The good news? You don’t need a Ph.D. in tax law to make smart decisions. For most people, equity questions collapse into a single, elegant choice:

Will you keep the shares, spend the proceeds, or invest the proceeds?

Everything else—AMT projections, blackout windows, and “what-if” scenarios—supports that core decision. Let’s walk through the three buckets one at a time.

Bucket 1: Keep the Stock or Options

Why keep? You believe the company’s long-term prospects justify the single-stock risk, or you want to defer taxes by holding ISOs past the qualifying window.

  1. Reality-check concentration risk. A common guideline is to limit any single position to 10-15 % of net worth. Gauge how a worst-case share-price drop would affect essentials such as retirement income or a child’s college tuition.

  2. Clarify intent. Are you holding out for a specific target price? Waiting for long-term capital-gain treatment? Either way, write the goal down so you’re less tempted to keep moving the goalposts.

  3. Coordinate with vesting rules. RSUs typically convert to shares automatically, whereas options require a deliberate exercise. If you keep NQSOs, remember ordinary income tax is triggered at exercise—so consider a simultaneous sell to cover tax if liquidity is tight.

Bucket 2: Sell and Spend

Why spend? Money is a tool for living the life you want now, not just someday.

  1. Plan forward, then work backward. Price out the remodel, the dream vacation, or the debt payoff. Gross up the figure to cover estimated taxes so the spending goal doesn’t derail your budget later.

  2. Sequence the sale for tax efficiency. ISOs held > 2 years from grant and > 1 year from exercise may qualify for long-term capital gains. RSUs and exercised NQSOs are already ordinary income—selling immediately rarely increases tax.

  3. Give yourself permission. Think of equity as a cash bonus that happened to arrive in stock form. If the purchase will truly improve your family’s quality of life, spending can be the smartest “investment” of all.

Bucket 3: Sell and Invest

Why invest? Diversification reduces the risk that one company’s fortunes dictate your own.

  1. Shift from single-stock risk to market risk. A globally diversified portfolio pairs thousands of companies and high-quality bonds, smoothing the ride while preserving growth potential.

  2. Invest sooner rather than later. Once you decide to diversify, cash sitting on the sidelines is expected to lag inflation. Moving proceeds promptly aligns your asset allocation with your long-term plan.

  3. Mind tax drag. In a taxable account, favor index ETFs or tax-efficient mutual funds and make use of tax-loss harvesting when markets dip.

The Hidden Cost of Indecision

Choosing not to act is still a choice—usually defaulting everything to the “keep” bucket. Ask yourself:

  • Is this the highest and best use of the money?

  • If the share price were to halve tomorrow, would my lifestyle suffer?

If hesitation stems from blackout windows or lock-ups, consider a Rule 10b5-1 trading plan that pre-authorizes sales once trading restrictions lift. A plan removes emotion and demonstrates loyalty to corporate policies while pursuing your personal goals.

Bringing Your Buckets Together

  1. Assign a percentage or share count to each bucket. (Example: keep 10 %, spend 20 %, invest 70 %.)

  2. Create an action checklist—exercise dates, target sale prices, and tax-payment deadlines.

  3. Review annually or when material life changes occur. Update targets, but keep the framework.

Equity compensation will always carry moving parts, but a three-bucket strategy turns complexity into clarity. Need a second opinion on how your buckets should look? Schedule a complimentary call with Falcon Wealth Planning, and let’s map an equity plan that supports the life you’re building.

All information provided is for educational purposes only and should not be construed as individualized investment, tax, or legal advice, or as an offer to buy or sell any security. Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. Advisory services are provided only under a written agreement and in jurisdictions where Falcon is properly registered or exempt. For additional disclosures, please see Falcon’s Form ADV at adviserinfo.sec.gov or contact us directly.