As an executive, senior leader, board member or partner at a listed company, it’s likely that you hold some form of employee share plan. These shares may represent a significant part of your portfolio and, in many cases, that has led to positive financial outcomes. But, if you’re drawing your income from and investing in the same place, you’re essentially drawing all your water from the same well. There’s no denying that, no matter how strong the company, that is a risky position. So how do you manage single-stock risk when you have a significant employee share plan?
Structure your finances to reduce concentrated risk
If 2020 taught us anything, it’s that we don’t know what’s around the corner. While your employee shares may have generated great returns for some time, just like any investment, there are no guarantees. It’s important to have a strategy that mitigates risks, but it must be designed for your specific circumstances and goals.
When it comes to mitigating single stock risks, there are a number of strategies you can consider, including:
- Using sell-down options strategically to manage your position
- Diversifying other assets to ensure you are spreading risk
- Employing hedging strategies against a price fall
Separate personal interests and financial decisions
If you have a significant stake in a business, it can be difficult to consider the situation from an external perspective, but it is important that you are able to think with a clear head. Even if the business is going from strength to strength, unexpected events can change things in an instant. Whether it is a global event, like COVID-19, or a personal one, such as illness or injury, it’s important to protect your finances from the unknown.
Sometimes, when it comes to making the right financial moves, personal interest and emotion can muddy the water. For example, selling some of your shares can feel like a betrayal or a vote of no-confidence in the business, but sometimes, it is simply the right thing to do to protect your financial position.
See the whole picture
As a key stakeholder in the business, you are likely putting a significant amount of your time, resources and focus on building its future, and it can be hard to find the time to look at the whole picture. But seeing the entire picture is important to make the right financial moves for yourself and your loved ones.
It’s something we do every day for our clients at Apt Private Capital. Our expert team assesses your employee share plan and how it relates to your cash flow needs, debt position and life goals to ensure you can live for today while planning for tomorrow.
If you have a significant investment in an employee share plan but don’t have time to manage the bigger picture, contact Apt Private Capital. Working closely with you, your family and your legal and accounting professionals, we’ll create a bespoke financial plan that preserves, protects and grows your wealth into the future.
General Advice warning
The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.
