Do you have too much of your company stock? Today let’s talk about one specific solution to that “concentration risk”: the exchange fund. (Really, I talk, you listen. Juuuuust the way I like it.)
Many people seem to think that exchange funds are another one of those “rich, sophisticated people who know how to work the system” tools. So much cool. So much smart. So much brag-worthy. In my opinion, however, in general, you’d be well served by staying away.
I recently went through this analysis with a client, who’d been invited to join an exchange fund and was wondering if she should. (Yes, you have to be invited to participate.) I hereby share the results of that analysis with you, in case you are tempted to join an exchange fund.
Much of what I know about exchange funds comes from my favorite book about equity compensation: Managing Concentrated Stock Wealth. The author, Tim Kochis, is kinda the godfather of equity-comp planning. The first time I ever heard him speak, I remember walking away with this single impression: Almost all the time, the best solution is to sell it, pay the taxes, and move on. So, be aware that that is the attitude I bring with me to all discussions about company stock. Any reason to vary from that approach is gonna have to be Pretty Damn Persuasive.
