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Sell or Hold RSUs? Scenario Analysis

My generic advice to anyone receiving RSU compensation is to sell your stock as soon as the units vest. When your shares vest you pay ordinary income tax regardless of whether you sell or hold the shares. There’s essentially no additional tax impact to selling the shares on the vesting date. Thus holding vested RSUs should be thought of as an active investing decision to purchase your company’s stock. 

If you’re considering purchasing shares in your employer, the investment hurdle should be a very high one. You’d only want to buy shares in the company when you’re highly confident the stock is significantly undervalued. How would you achieve such confidence? You’ll need a robust set of analytical tools to research the stock and come up with a sound investment thesis. It usually takes years of education and practical experience to develop into a competent investor. Unless investing is your job or an all encompassing passion you’re almost certainly better off avoiding active investments. Most successful high earners are better served focusing on growing their career rather than speculating in individual stocks. 

Many people don’t put much thought into their RSUs and end up holding them (the default option). Others feel optimistic about their company or look at the outperformance of the shares and decide they’re comfortable holding onto it. 

I thought it would be good to look at a couple different scenarios to put some numbers behind different scenarios. First we’ll look at an example of the company stock outperforming the market before looking at what happens when it underperforms. 

Scenario Analysis:

Details: $400K initial grant spread over 4 years with 25% vesting each year. Stock market index returns 10% per year. 

Scenario 1: Company stock significantly outperforms the market. Company stock appreciates 20% per year. 

In this scenario the hypothetical employee is going to be well off in either scenario. The initial grant of $400K will grow to either $731K if the vested RSUs are sold and put into the index or up to $829K if they’re kept in the outperforming company stock. This is a bit over a 13% difference in the amount of money you end up with by holding onto your RSUs. 

Obviously this employee would be better off holding onto their vested RSUs that outperform the index. There is a downside to this though. At the end of the scenario the employee who held those RSUs will now have a very concentrated portfolio in the employer. You’ll be sitting on $829K of employer stock with over $185K in capital gains. Thus you’ll have to take a significant tax hit to rebalance the portfolio. 

Scenario 2: Company stock significantly underperforms the market. Company stock depreciates 10% per year.

 In this scenario the hypothetical employee would have $100K more in net worth if they had sold their shares and put them into an index fund. This results in 38% more money by selling and investing in the index.

The increased value of selling the RSUs and reinvesting them is significant here. It’s very typical to see layoffs, compensation freezes or cuts, and other harsh measures at companies whose stock has done poorly. Thus it’s more helpful to have that greater financial cushion in scenario 2 than outperforming in scenario 1. 


Financial planning often deals with an uncertain future and RSUs are a great example of dealing with this. As in other areas of financial planning and investment I prefer to take a conservative approach that will maximize your outcome in a variety of future scenarios. If your company stock does well, you will be in a strong financial position regardless of whether you hold the RSUs or sell. 

If your company stock struggles, you will be vastly better off if you had sold your RSUs and invested in the index. This is even more important in some of the tail case scenarios when company stocks do really poorly. There are hundreds of bankruptcies every year. Even more companies see their stock take a 50% haircut. Just look at Meta (formerly Facebook) this year. The stock is down more than 70% and many of its employees never sold their RSUs. 

If you want to discuss your RSU compensation or your financial situation, schedule a complimentary call today.  

Scott Caufield, CFA, CPA