Think RSUs Alone Are Enough? Here’s How To Invest Wisely
True Root Financial is a financial advisor and financial planner based in San Francisco, CA. We serve clients across the globe.
When Cassie landed her first role at a fast-growing startup in San Francisco, the offer came with something exciting: Restricted Stock Units (RSUs). The recruiter said, “Your salary is competitive, but the real upside is in your equity.” Cassie saw dollar signs.
Fast-forward five years. Her company stock had grown, her RSUs were vesting like clockwork, and her W-2 income looked impressive. But she didn’t feel financially free. In fact, she felt uncertain.
If you are a tech professional interested in learning how we can help you claim your financial independence by investing wisely, minimizing taxes, and maximizing your equity compensation, please book a no-obligation call here.
Key Takeaways:
- Don’t treat RSUs as guaranteed wealth—recognize the risks
- Plan your sell strategy based on taxes, diversification, and goals
- Reinvest into diversified, tax-efficient accounts
- Align your investments with your personal life vision
The RSU’s: Why They’re Not a Retirement Plan?
RSUs can be a fantastic wealth-building tool, but they come with a few hidden risks:
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You’re Tied to One Company
If most of your net worth is tied up in your employer’s stock, you’re vulnerable to company-specific risks. What if your company’s valuation drops? What if you decide to leave?
Let’s say you work at a well-known tech company, and your RSUs have grown to $400,000. That feels great—until the company has a bad earnings report or experiences layoffs, and the stock drops 40%. Now your equity’s worth $240,000, and your job may be at risk too.
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Vesting ≠ Cash in Hand
Just because you’ve been granted RSUs doesn’t mean you’ll receive them. If you leave your job before they vest, you walk away with nothing. And even after they vest, they’re taxed like income.
Imagine you have 100 RSUs vesting today at $200 per share. That’s $20,000 of income—great! But it will be taxed at your marginal rate. If you’re in California, your effective tax rate might be over 40%. Suddenly, you’re paying $8,000+ in taxes.
Many employees forget this and fail to withhold enough, which can create surprise tax bills in April.
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RSUs Often Lull You Into Inaction
When you see large dollar amounts on your pay stub or E*TRADE dashboard, it’s easy to assume you’re on track. But RSUs create an illusion of financial progress. You might think, “My stock is doing well—I’m fine,” and delay saving, investing, or building a real plan.
But RSUs fluctuate. They’re illiquid until they vest. And if you’re not proactively managing them—selling with a plan, reinvesting with intention—you’re just passively accumulating risk.
Bottom Line: RSUs are income, not a strategy.
So, What’s the Smart Way to Handle RSUs?
1. Reinvest RSU Proceeds Into a Diversified Portfolio
Once you sell, don’t just let the money sit in your checking account. Make it work:
3–7 years: Use a mix of stocks and bonds in a brokerage account.
7+ years: Invest in diversified index funds or ETFs through a taxable account and max out your retirement accounts.
Bonus tip: Use your RSU proceeds to supercharge your financial plan—max out your 401(k), fund a backdoor Roth IRA, or even open a 529 plan if you have kids.
2. Be Strategic About RSU Taxes
RSU taxation is straightforward on the surface—they’re taxed as income when they vest—but smart tax planning can still make a huge difference.
- Avoid surprise bills: Many employers don’t withhold enough federal or state tax at vesting. Review your pay stubs and consider making estimated tax payments if necessary.
- Use RSUs to fund tax payments: If you have a big vesting event coming, consider selling enough shares to cover your tax obligation immediately.
- Time vesting and bonuses carefully: If your vesting schedule is flexible (some companies allow deferred delivery), consider working with a financial advisor to optimize around tax brackets, AMT, or income thresholds.
3. Monitor Concentration Risk Ongoing
Many tech employees start with a few thousand dollars in RSUs and wake up five years later with $500,000+ in company stock. That’s a great problem to have—but it’s still a problem.
If more than 10–15% of your total net worth is in your company’s stock, you’re overexposed. Even if the company is thriving now, single-stock bets are inherently risky.
4. Take Advantage of Market Timing (But Don’t Rely On It)
For example, if your company has just announced major layoffs, is facing a significant leadership change, or is experiencing a dip in stock price after an earnings report, it could be a good time to re-evaluate your position and sell some shares. You don’t need to predict the market, but be proactive in assessing company news and overall market conditions.
Do Periodic Reviews:
- How much of your net worth is in company stock?
- What percentage of your annual income comes from RSUs?
- Would a stock crash derail your plans?
Use that information to guide when and how much to sell.
Let’s be clear: RSUs are an incredible opportunity. They can accelerate your path to financial independence. But only if you use them wisely.
🚩They’re taxed!
🚩They’re concentrated!
🚩They’re temporary, vesting ends when you leave!
So, treat RSUs like income, not like a nest egg. Build a strategy around them. Sell with a plan. Reinvest with purpose.
Most importantly, they should be made part of a broader investment strategy that doesn’t depend on a single stock or employer.
Next Steps For You:
If you’re a tech professional in San Francisco or the Bay Area, I’d love to help you create a financial plan that transforms your equity into lasting wealth. Schedule your free consultation here.
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