RSUs and Autosale
If you work at a big public company, your compensation package often includes a certain number of RSUs, or restricted stock units. These are shares of stock in the company.
They're “restricted” in the sense that you won't get them all at once. Instead, they'll vest under certain conditions, after which you can sell them. Those conditions are generally based on your length of employment.
A common vesting schedule features a four-year vesting period with a one-year cliff. This means that none of your RSUs will vest until the end of the first year, at which point you'll receive a whole year's worth. After that, you'll receive a regular amount every month for the next three years.
For example, suppose you're offered a job at BigTechCo that includes 96 RSUs. None of those shares will vest for the first year, but 25% of them (24 units) will vest at the start of your second year. Two more RSUs will vest every subsequent month for the next three years.
Get Rid of 'Em
RSUs are a perfect example of the “If You Wouldn't Buy It, Sell It!” principle.
You may believe that your employer is a terrific company whose stock price will rise. That might be true! But, if you had the value of your RSUs in cash, would you use it all to buy shares in them?
I hope you wouldn't! We discussed diversification earlier, and why picking individual stocks is risky business, but RSUs are even scarier. Consider: if the company fails, you might lose both your job and your investments. I'd rather not have my financial future entirely wrapped up with the fortunes of a single company.
I suggest that you think of your RSUs as cash. Sell them immediately and invest that money as you otherwise would.
A common myth, by the way, is that RSUs are somehow tax-free, and thus shouldn't be sold so as to avoid having them taxed. This is incorrect! Any stock grant you've received has already been taxed, just like your salary; you're receiving only the post-tax portion of it. Sell away.
Suppose you own some of your employer's stock. As an employee, you may have access to private information about the company. You're therefore subject to laws governing insider trading.
This means, for example, that you can't sell your RSUs during blackout periods. These can happen at almost any time, but usually occur prior to the release of important information about the company—restructuring plans, quarterly earnings reports, and so on.
For some companies, blackout periods are more the rule than the exception. If you want to sell your RSUs, you may need to plan ahead. Check with your HR department for details.
Many big companies have an autosale plan, which automatically sells off your RSUs at the current market rate as soon as they vest and places the money in a checking account. Since sales happen automatically, without your involvement, autosale will continue operating during blackout periods.
This is great!
- Your unwanted RSUs are converted into cash,
- The cash arrives at a predictable rate as your RSUs vest, regardless of blackout periods, and
- Autosale integrates nicely with automated investing. Your RSUs will be automatically sold, and your brokerage can automatically withdraw their value from the settlement account and use it to purchase index funds or other more desirable assets.
Be aware that you generally can't enroll in (or cancel) autosale during blackout periods, so be sure to plan accordingly.