RSU Sell Now vs. Hold: Concentration Risk vs. Tax
Example: Shares vested: 500 · Current stock price: 150 $ · Cost basis per share (FMV at vest): 148 $ · Expected company stock growth (annual): 8 % · Diversified portfolio return: 7 % · Comparison horizon: 10 years · Marginal income tax rate: 24 % · Long-term capital gains rate: 15 %
| Sell and diversify wins? (1=yes) | 0 |
| Sell now + diversify: future value | $147,241 |
| Hold company stock: future value | $148,731 |
| Current RSU value | $75,000 |
Worked example
500 RSUs at $150 = $75,000 at vest (basis $148/share, minimal immediate gain). Sold and diversified at 7% for 10 years: $75,000 × 1.07^10 = $147,523 after 15% LTCG on eventual gain. Held at 8% growth: $75,000 × 1.08^10 = $161,924 before tax, minus LTCG on full gain = ~$138,000 net. Sell-and-diversify wins at these numbers despite the lower expected return, because concentration risk is not in this calculator — the stock's actual range is far wider than 8%.
Frequently asked questions
Why do financial advisors say to sell RSUs immediately at vest?
Because RSUs already represent a large concentration in one company — the same company paying your salary. If the company underperforms, you lose on both compensation and portfolio at the same time. The standard advice is sell immediately at vest and diversify, unless you have a specific reason to hold.
Is there a tax advantage to holding RSUs longer?
Holding more than one year after vest converts the gain from ordinary income to long-term capital gains rates (0%, 15%, or 20%). But since the cost basis is FMV at vest, any gain from vest-day price to sale price is what gets the LTCG treatment — not the original full value.
What is the 10b5-1 plan used by executives?
A 10b5-1 plan is a pre-scheduled trading plan that lets insiders sell shares on a fixed schedule, insulating them from insider-trading accusations. It effectively dollar-cost-averages out of a concentrated position over time. Not relevant for most employees, but worth knowing if you receive large RSU grants regularly.
Should I hold RSUs if I believe the company will significantly outperform?
That belief is the core tension. The hold path requires the stock to outperform the diversified portfolio by enough to compensate for the concentration risk — which means single-stock volatility, idiosyncratic risk, and correlation with your human capital. Overconfidence in employer-stock is a documented behavioral bias.