Managing Equity Comp: How to Balance the Risks and Rewards

49: Leveraging equity compensation is one of the potential avenues we previously highlighted for use on the road to building wealth. But to enjoy the rewards, you have to know how to manage the risks along the way.

Many industries offer a piece of ownership to company employees through equity compensation packages. If you receive equity, you might get incentive stock options (ISOs), non-qualified stock options (NQSOs), restricted stock, restricted stock units (RSUs), or have the ability to participate in an employer stock purchase plan (ESPP).

Any type of equity compensation can supercharge your ability to grow your assets in a short period of time. But with high potential for reward comes the real threat of risk and loss. Successfully leveraging your equity compensation will require you to strike the right balance between reaping the benefits and protecting against the downsides.

Today on the show, we provide a general overview of equity compensation and how to manage it to your advantage. We cover:

Why companies might offer equity comp to employees Common types of equity we most often see our wealth management clients receive from their companies The benefits of receiving equity (and why pursuing a position with a company who offers it as part of their compensation packages might be a worthwhile effort) The downside risks of any equity comp package and the common mistakes we see people make Why even the opportunity to hit a home run with a rising company stock price is probably not worth chasing (and what you can do instead that will still increase your wealth without sacrificing your ability to achieve your goals) Baseline strategies you can use to manage your equity compensation over time