How to Talk to Your Spouse about Company Stock Options
Part of moving up in the business world is accepting company stock options. Stock plans are a good idea for anyone looking for long-term employment. If the company’s stock value is in good shape and you have the capital to invest, then stock options are a great way to begin your executive financial lifestyle. Of course, that kind of financial decision is one made with a financial partner, like your spouse. For many married couples, finances are shared completely. Both incomes and all spending are shared between the spouses, even if each has separate accounts and credit cards.
Investing in stock options is a big financial decision, as grant prices are a discount not an actual gift of stock. So how do you talk to your spouse about investing in your first really valuable stock option? It all starts with the facts.
The Basic Information
When talking to your spouse about buying company stocks, it helps to start with the basic facts. Write it down, email it, write it on the family white board. Make these numbers the center of your considerations, because your decisions will be ultimately influenced by the basic facts of your stock option.
Grant Price and Value
The grant price is the amount you’ll be able to purchase stock at, regardless of the current market price. In all good stock offers, the grant price is lower than the market price, and may be predicted as a better deal when the vesting period is complete.
Tell your partner the grant price, the amount per share you’ll be paying. Then share the current stock value and the predicted value in the next five years.
Share Count and Total Price
Next, explain how many shares you’ll have the option of buying. This is the scope of your offer and the maximum number of shares you could buy at the grant price. With this number, you can do some basic math. You can explore potential cost amounts by multiplying the grant price by the number of shares you might buy.
The vesting schedule determines your window for decision-making and share purchasing, known as exercising your stock option. There will be a ‘vesting period’ in which you’ll wait for the stock to become available. You may have a cliff vesting schedule, where all the stock is available at once. Or your might have a tiered vesting schedule, where the stock becomes available in stages. The schedule is capped by an expiration date.
Talk about the vesting schedule with your spouse and map out the dates on a calendar to frame your decision window.
The expiration date is your last chance to buy stock at the grant price discount. Emphasize this to your spouse as the end of your window, but also the full duration you can prepare or deliberate about buying stock.
Minimum and Maximum Investment Capital
Once your spouse understands the basic facts of the stock option, the next idea to approach is investment capital. Most likely, you’re planning on buying stock with shared finances, which means your spouse needs to be positive about the investment as well. So the amount you might invest needs to be discussed. Start by talking about the minimum investment and maximum investment that you might go in for.
The minimum investment is the price of one stock at the grant price. Just to have bought some, or to experiment. The maximum investment would be your total offered stocks multiplied by the grant price. That would be the maximum amount you could exercise your stock option. This gives you a financial window to pick from as you choose to invest as a couple.
Time to Save Investment Capital
The next question is how long it would take to save up your investment amount. The ideal use of the vesting period is to save investment capital without digging into your existing savings. Instead, you can calculate the amount of time it would take to save the amount you want to invest. Many spouses will be more friendly about the idea of saving in the future for future investment costs, instead of dipping into the savings they’ve already put together.
Calculate the amount you can save each month. Divide your total savings goal by your monthly savings to get months of savings. Divide that by twelve for years of savings. Consider your savings rate compared to the vesting schedule, and remember that you can eventually buy stocks a few at a time.
Potential to Earn from Stock Value
The next significant discussion is the long-term value of the stocks. There are libraries of books written on understanding and profiting from the stock market. But the basic calculation is:
“Has the company’s stock risen steadily in the past?”
“Is there any reason the company’s stock wouldn’t keep rising?”
Look at the past several years, or decades, of stock value of the company with your spouse. Point out how the value rises and how this compares to inflation. Then talk about market stability and reasons to believe the stock would keep doing the same it always has.
Best Price Timing
In every company stock option, there is a best time to buy the stock. Stock rises and falls in a pattern, but your grant price remains the same. This means strategic stock option exercising means buying when your grant price is the best possible deal. Talk to your spouse about finding these best price purchase times. You want them watching the numbers and on your side when it comes to turning this investment into profits that you will share.
Best price timing your stock purchases can be an engaging and valuable way to take advantage of stock options, and to keep your spouse a part of your stock purchasing decisions.
Building a Stock Portfolio
The next conversation is building a stock portfolio. “Never put all your eggs in one basket” is a central policy of playing the stock market. Disaster, scandal, and market changes can happen to any business, so it’s always smart to build a stable stock portfolio if you plan to build reliable financial accounts based on stocks.
This means you’ll want to invest in a mutual fund or carefully build out your investments beyond just the company stock options. Your spouse may want to be actively involved in how you build that portfolio to support and balance the company stock options you buy. Work with a financial planner or stock account manager to approach this conversation.
Virtual Stock Market Practice
Lastly, one very useful tool is the virtual stock market. There are several paltforms and programs that use real stock market values to simulate what it’s like to invest. You can use these platforms to buy stocks with fake digital money. The programs then help you track the theoretical stocks you bought and the profits or losses you make.
Introduce your spouse to the virtual stock market and play it together or separately. This is a great way to get a feel for investment and learn the basics of investment without actually putting real money at risk.
Buying company stocks can be a big financial decision, one that’s best made with your spouse as part of the team. Together, you can save up and invest for long-term financial gains. But it’s important to make the right decisions for the best possible benefit. If you have been offered company stock options and want to make the best decision on exercising those options, contact us today.
Mark is a +24 year financial advisor veteran and Certified Financial Planner™. He founded Infinium in 2009 to bring a more personal, and truly client-centric offering to investors.