Broker Check

Monday Money Report

| May 06, 2024

The market was up again last week, as investors digested inflation and labor reports, along with Federal Reserve Chair Jerome Powell’s comments on potential interest rate moves. Things seem to be pointing to rate cuts later this year, but how much and when remain to be seen. The VIX, or Volatility Index, was at 13.49 on Friday, well below its long-term average of 20.[1] The VIX is a good indication of investor concern and typically moves opposite stock indices.

 

A rising market is also good for people with restricted stock units, or RSUs. RSUs are granted as part of a compensation package, either as part of your regular pay, or as a bonus. Either way, there is no immediate value. They vest, or mature, over a period of time, often three to five years. When the RSUs vest, the value of the stock becomes part of your taxable compensation.

 

The IRS does not care if you are paid in cash, stock, or toasters. The value of what you receive is taxable. Most companies will automatically sell to cover. This means they sell enough of the stock to cover the tax withholding due for the compensation received. Some companies will allow you to pick this amount, and some use a standard that can’t be changed. If you receive RSUs you should work with your tax professional to make certain that you are having enough withheld, either directly on the RSUs or as part of your paycheck withholding, to avoid a penalty.

 

Once your RSUs vest, and a percentage are sold for taxes, the remaining stock is yours. Depending on your company, you may want to hold on to that stock, or you may want to sell. If you sell immediately upon receipt of the vested stock, there will be no additional taxes due. If you hold onto the stock and sell later, capital gains tax rules apply.

 

Depending on your level in the company, there may be trading windows, or times when you are allowed to buy or sell stock in your employer. If you are considered an insider, usually a high-level executive in the company, you may also wish to establish a 10b5-1 plan, which is a preset plan for selling a certain amount of shares at set times or prices.

 

If you are going to hold company stock, we often suggest no more than 10% of your net worth be invested in your employer.  It’s also possible to use that company stock to open a line of credit, called a Securities-Backed Line of Credit, or SBLOC, against those shares. The great thing about SBLOCs is that most do not have any fees to establish or hold them, and they aren’t reported on your credit report.

 

Finally, you may wish to screen out your employer’s stock in your portfolio. This protects you from being over-invested in your employer.

 

Your action item is to move your money from savings or checking into a high-yield savings account or money market.  Look for an account paying at least 4%. If you are concerned about FDIC limits, we have an option that is currently paying 5% and provides up to $5 million in FDIC protection.

Be sure to check out our website at covingtonalsina.com, or our Facebook page, for more information and to register for our upcoming educational events.

CovingtonAlsina is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.


[1] Market Watch, US Stocks rally on “Goldilocks” jobs report by Christine Idzelis 05/04/2024