Tag Archives: mistakes


The Right and Wrong Reasons to Change Your Risk Tolerance

Our clients sometimes ask us how often they should change their risk tolerance score. The answer is: Not often. You won’t be surprised to find that the question comes up most frequently when the markets are either up big or down big. Human nature leads us to want to increase our risk tolerance when we experience an up market and decrease our risk tolerance in down markets. Like most everything in investing, what feels right seldom is. There are a few good reasons to change your risk tolerance but there are also bad reasons that you should learn to recognize and avoid. Good Reasons: Significant Financial Changes There are several significant events that can change your risk tolerance: A major […]

Invest Despite Volatility

Many facets of investing are counterintuitive. Investment strategies that feel right seldom are. A classic example of this is how to deal with market volatility. During a recent investment seminar I gave to Dropbox employees, I asked the audience which type of market they would prefer to invest in periodically each year if they didn’t intend to withdraw their money until 10 years from now. I showed them the three charts below and asked them to vote.           You probably won’t be surprised to learn that Behavior Chart A  was the vote’s biggest winner while Behavior Chart C  garnered the fewest votes. However, you may be surprised to discover that Behavior Chart C  actually displays the best […]

The Two Types of Job Offers

In the past we have written numerous posts to help you evaluate specific job offers, but recently we realized we neglected a critical piece of information. There are two distinct job-offer approaches companies take; each can provide you some real insight into how they operate. Some companies believe in starting with a low offer to see if you will negotiate, while others offer fair market value and usually are not willing to negotiate. There isn’t a correct answer but you do need to recognize which type of company you’re dealing with and decide which type of company you want to work for. The Low-Ball Approach Unfortunately, a common characteristic of very successful entrepreneurs is they are often very cheap when […]

How To Sell Your Single-Stock Position Tax-Efficiently

We recently launched the Single-Stock Diversification Service — an easy way to transition from large holdings of a single stock (perhaps that of your current or ex-employer) to a Wealthfront diversified portfolio. One of the problems we aimed to solve with the Single-Stock Diversification Service is tax-optimization. We knew that many of our Single-Stock Diversification Service clients would have multiple types and lots of employee stock that they would want to diversify. It becomes difficult to know which shares to sell first to get the best after-tax outcome when some of your shares come from restricted stock units (RSUs) and others from exercised stock options. To make matters more confusing, many of the shares have vested at different times and […]

Improving Tax Results for Your Stock Option or Restricted Stock Grant, Part 3

Wrapping It All Up: Tax Strategies In this third and final part to our series on the taxation of stock options and restricted stock units (RSUs), we’ll outline some strategies you can use to achieve better tax consequences. While the list below is definitely not comprehensive, it does cover some impactful strategies. Remember that — based on the various types of taxes described in Part 1 of this series — through good tax planning, you may be able to achieve a 19.6% improvement in your federal taxation rate. This improvement represents the difference between the federal ordinary income tax at 39.6% and the long-term capital gains rate at 20%. Early-Stage ISO Exercise and Hold While this may seem like it […]

Improving Tax Results for Your Stock Option or Restricted Stock Grant, Part 2

Applying the Tax Law to Common Employee Stock Situations In the first part of this three-part series, we discussed the four main taxes relevant to individuals. Now we’ll apply that knowledge to show what taxes would be incurred in five common situations faced by employees who work for venture-capital-backed companies. 1: Angel Investment or Founder Stock For many start-up companies, the first money in comes from angel investors or the founders themselves in exchange for preferred and common stock, respectively. In exchange for cash, investors (perhaps through a limited partnership) and founders receive shares of stock. The capital gains holding clock starts with the purchase of these shares, and it stops upon disposition of the stock. The shareholder realizes a […]

The Post-IPO Dilemma: Hedging Your Stock

If your company recently went public and your stock price has gone up significantly then you’re probably wondering how you can hedge your position. Unfortunately there’s nothing you can do while you’re still in the 180-day lock-up period. Most lockup agreements have extremely detailed restrictions included, designed to prevent almost any form of market participation with a security.  It’s too long to reproduce anything but a sample here, but it typically begins like this: In consideration of the Underwriters’ agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of each of [names of managing underwriters], […]

The 14 Crucial Questions About Stock Options

Ask These 12 Questions About Your Options

In April 2012 I wrote a blog post titled The 12 Crucial Questions About Stock Options. It was meant to be a comprehensive list of option-related questions you need to ask when you receive an offer to join a private company. Based on the outstanding feedback I received from our readers on this and subsequent posts about options, I’m now expanding the original post a bit. I’ve done just a little updating and posed two new questions – hence the slight title change: The 14 Crucial Questions About Stock Options. Next time someone offers you 100,000 options to join their company, don’t get too excited. Over my 30-year career in Silicon Valley, I’ve watched many employees fall into the trap […]

When to Diversify Across Financial Advisors

Last month Wealthfront hosted an event that featured our chief investment officer, Burt Malkiel.  It’s wonderful to listen to Burt, because he discusses the markets with such clarity. Markets go up, and markets go down.  You can’t control them. As an investor, you should instead focus your efforts on the three things you can control that will make a difference:  Diversify your portfolio, minimize fees and minimize taxes. During our Q&A session, one of our clients asked Burt, “Does it make sense to diversify across financial advisors?” Burt’s answer was simple: “There is no real benefit to diversifying advisors if your advisor follows my advice of diversifying your portfolio across index funds that represent a variety of asset classes. Hiring […]

Angel investing? Rental property? What to do with your play money

An oft-heard request here at Wealthfront, at least among a significant portion of our client-base, has been a desire to set aside some play money. Just to be clear, we are referring to the Silicon Valley iteration of this concept whereby clients would like to invest some of their money outside of the rebalanced diversified portfolio of low-cost index funds we have created for them. Perhaps they have heard from friends or received suggestions or pitches to invest in rental property or become an angel investor. Such ideas are driven by a desire, innate in some of us (especially so among many bright young Valley professionals) to be active investors. Sure, our clients are more aware than most of the […]