The stock market has been having a great year (+17% S&P500), but that hasn’t stopped me from fretting over the price of MegaCorp stock (-8%), as I continue to sit on significant stock options as part of our early retirement portfolio. While many retirees may be celebrating the record market closes this week and ongoing ‘Trump Bump’, our portfolio is sitting FLAT for the year.
I’ve written before about these MegaCorp stock options we have in our portfolio. They represent a significant portion of our nest egg (about 25%) and the window to exercise them stretches between now and 2022. Because they are options, they have significant leverage (a 10% share price movement up or down yields 30% increase or decrease on the value of our options). This is great when they are going up – but it has been painful this year.
Last fall, the stock shot from $60 to $72, before dropping precipitously and finishing the year only slightly ahead at $61. In 2017, it’s been all downside with a low point of $50 in early November. The price now rose to near $57 this week and I unloaded a good chunk of the options that are within 6 months of expiring. It has been a roller coaster ride – and not a fun one!
My experience with these options (which once represented more than 50% of our wealth) reminds me of the wisdom to not have too many eggs in one basket. This often happens for people that work for a big company and have annual stock grants, option programs, and employee stock purchase plans. Before you know it, a lot of your long term success is tied to MegaCorp’s daily stock quote.
The personal finance writer Jane Bryant Quinn calls this out in her book Making The Most of Your Money. In addition to being dependent on one company for your income, family medical benefits, and insurance – people compound their reliance on the company by also loading up on their stock. Some people even have a company car, company phone, and other corporate dependencies.
A friend of mine recently talked about how his company is working on some new innovations that were exciting and how he was buying extra stock in hopes of benefiting from their success. I told him my concern would be that you already have so much riding on the success of the company, you might want ensure you are as diversified as possible in the discretionary investments you make. New products can succeed or fail – and most of them fail. Additionally, individual companies can fail for reasons other than their marketplace performance – just think of Enron.
How dependent is your FIRE nest egg on a single employer?
What’s the highest it has ever been?
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