If your goal is to get as rich as possible, then sure, yes, you can keep most of your company stock. After all, concentrated ownership in an asset is one of the few ways to build startling wealth.
But what if the company stock price tanks? (That’s been known to happen a time or 1000 in the aftermath of an IPO.)
Or you need the money to do something or buy something now?
Your savvy tax- and wealth-optimization maneuvers can result in less money, for the simple reason that we just don’t know how this stock is going to perform. Now, if it’s “just money,” then maybe our attitude is “oh well.”
But if instead of “just money,” it’s your kid’s college, or your first home, your return to school to train for a new career, that trip you really want to take your family on, or that robust cash emergency fund you’ve always lacked and has always made you feel vaguely unsafe…well then, that’s actually kind of a tragedy.
Consider two people going through the same IPO: Chloe and Jane.
They each have $2M worth of company stock. Chloe does all the wealth-maximizing, tax-minimizing things. Chloe doesn’t have much sense of what she wants out of life. She just wants to have more money, be wealthier, be “financially independent,” to do what she wants when she wants.
Jane, on the other hand, has a pretty clear vision of what she wants out of life. She has thought about this before. She wants enough wealth that she can feel comfortable saying No the next time her job makes her feel uncomfortable or morally compromised. She wants to move back home, closer to family, and buy a home there. So, she sells most of her stock as soon as she can, not even paying much attention to the tax rate.
This can play out two ways:
Way #1: Let’s say the company stock goes on to do poorly. Well, then, generally it was a better bet to sell the stock ASAP, when it was worth more. Jane comes out on top: She has more money than Chloe and more ability to build her vision of a rich life.
That’s an easy one.
Way #2: But now let’s say that the stock instead goes on to do great! Chloe ends up with four times the wealth that Jane does!
You might think this makes Jane’s path the less fortunate one. I would argue Jane still probably comes out ahead. How is that possible?
Jane still has enough money to allow her to quit her job if it ceases being a good fit for her, and enough money to move back home and buy a house. She can still fund her vision of a rich life.
On the other hand, yes, Chloe has money. Lots of it. And money ain’t nothing to sneeze at. But that’s kind of all she has. There’s no higher purpose that this money is serving in her life. Maybe she can get a more expensive home. Go out to eat more. Take nicer vacations. But unless there’s a broader vision underlying those things, it’s just plain consumption.
Now, look, no financial planner worth their shiny CFP® lapel pin would tell you to ignore taxes and the strategies for building more wealth. We have to know these things so we can make an informed decision.
But I don’t actually think your IPO, even if it “goes well,” will meaningfully change your life if you don’t start with a vision (even a vague one) of the life you want to build for yourself, now and in the future.
Step #1 is to build that vision. At least the outlines of one.
Step #2 is to optimize for minimizing taxes and building wealth within that larger life plan, not as the plan itself.
I invite you to figure out how you’re going to define a “successful” IPO.
Is it defined by how much you pay to the IRS? Is it defined by how much money you get compared to your colleagues?
Or is it (and I hope you arrive here) defined by your ability to meaningfully support a life of meaning and joy? A life that better enables you to build and honor relationships? To serve others?
