What Should I Do With My Stock Options?

What should I do with my stock options?
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Stock options are a great perk offered by many companies. Stock options allow you to purchase stock at a reduced price. You are required to hold onto the stock for a set length of time before you can sell the stock. The company allows the employee to benefit from the growth of the company when they offer stock options. Start ups will often offer this option with a lower starting wage, but bigger companies can offer stock options too.

When Should I Purchase Stock Options?

If you have been given the opportunity to purchase stock options, you may want to take advantage of them if you can currently afford to do so. You should not go into debt to purchase stock options. It is important that you weigh the risk of these stocks against what you can afford to lose. You should also only purchase stock options if you are confident that the company is going to continue to grow and profit. You should also look at the conditions regarding the stock options and how long it takes you to become vested in the stocks. If you are planning on leaving the company soon, you may not want to purchase the stocks. When you purchase the stocks you should also plan for tax implications, some stock options are given as tax free, and you will only pay a capital gains tax when you sell them. Others are reported as taxable income.

When Should I Not Take Advantage of the Stock Options?

At times the offered price may not be deeply discounted enough to be beneficial.

If the discount is not very deep or if the current market price has dropped below the amount they are offering your options for, then it is not a good deal. You will lose money when you do decide to make the sell of the stocks. If you cannot afford your stock options, you really should not buy them.

This means that you do not go into debt or end up buying a month's worth of expenses on a credit card in order to afford the options. 

What Do I Do With My Stock Options Once I Have Them?

If you purchase the stock options you should set a guideline about when you want to sell the shares. You may want to hold onto a certain percentage of your shares, but it is important to diversify your investments and savings, so you will need to sell some of your shares. You may set a dollar figure to indicate when it is time to sell your shares, and then sell the percentage you have set. Additionally, you may want to set another dollar figure amount when you sell another percentage. You may have times when the stocks decrease in value, don’t panic and sell them. You should ride out the lows in the stocks. The biggest danger in taking advantage of stock options is to have too much of your money tied up in a single stock. Be sure to diversify as soon as you can.

Can I Use Stock Options for Retirement Savings? 

It is possible to use your stock options for your retirement savings, but they will not be protected from taxes the way that your investments in a 401(k) or IRA would be. One way around that is to invest the money you get from selling it or from dividends  in an IRA account.

When you own stocks you will receive dividends on the stocks. You should determine what you want to do with this money now. You can really improve your retirement savings by putting your dividends directly into an IRA or another savings account that has been earmarked for retirement. It can be frustrating to realize that the stocks you have been holding onto as security have dropped in value. If you are serious about entering the market you should talk to a financial planner, and discuss just how the stock options will fit into your overall financial plan. If you want to really build wealth, you need to carefully follow a budget, plan for retirement and invest wisely. It will take time, but it is possible.