In Short: Most engineers treat vested RSUs as a non-decision. Inaction is an active investment choice to hold concentrated employer stock. Three questions, concentration, conviction, and cash needs, tell you whether to sell, hold, or diversify. Most paths lead to sell. The exceptions need clearing all three gates.
Your RSUs just vested. $40,000 in company stock hit your brokerage account. What did you do?
If the answer is "nothing," you just made an active investment decision to buy your employer's stock at today's price, without realizing it.
That's the part most people miss. Inaction with vested RSUs isn't neutral. It's a vote of confidence in your company's stock, made with real money that's already been taxed as income. The question isn't whether to make a decision. It's whether you're making it intentionally.
Across 8+ years of helping engineers decode their compensation, one pattern repeats: most people don't have an RSU strategy. They have inertia. They let shares accumulate because selling feels like betting against the company, and doing nothing feels safe. It's not.
Three variables decide the right move: concentration (how much of your net worth is already tied to this company), conviction (whether you actually believe this stock beats the index), and cash needs (what you need the money for and when). Work through them in order, and the answer becomes clear.
Before the Decision Tree: What RSUs Actually Are (In One Paragraph)
RSUs (Restricted Stock Units) are a promise of company shares delivered to you on a vesting schedule, typically over four years with a one-year cliff. When a tranche vests, the IRS treats the shares' fair market value on that day as ordinary income. Your employer withholds taxes, often at the federal supplemental rate of 22%, and hands you the net shares.
Here's the catch most tech employees discover at tax time: if you're in a 32%, 35%, or 37% federal bracket (which many mid-to-senior engineers are), that 22% withholding leaves a gap. A $40,000 vest at a 35% marginal rate means $5,200 in taxes your employer didn't capture. That bill is coming in April. Factor it in before you make any holding decision.
Everything that happens after vesting, appreciation, dividends, eventual sale, is treated as capital gains, short-term if held under a year, long-term if held over. For a deeper breakdown of vesting schedules, cliffs, and how to read your offer's equity section, see our guide on how to decode your tech offer letter.
Question 1: Concentration. What Percentage of Your Net Worth Is Tied to This Company?
This is the threshold question, and it needs an honest answer that includes more than just your vested shares.
Calculate your total company exposure:
(Vested stock value + Unvested RSU value + Any company options) / Total investable net worth
That ratio is your concentration percentage. If it's above 20%, you're in the danger zone regardless of how you feel about the company. Most financial frameworks flag 10-20% as the caution range and anything above 20% as genuinely risky.
Here's why the threshold matters so much: you already have three forms of exposure to your employer's performance.
- Your salary. If the company does badly, layoffs happen. Your primary income is at risk.
- Your unvested RSUs. Future compensation that hasn't hit your account yet is correlated to the same company doing well.
- Your vested stock. The shares you're deciding what to do with right now.
A concentrated position means that if your company hits a bad quarter, a reorg, or a public relations crisis, you don't just lose portfolio value. You potentially lose your job and your savings at the same time. That's the double hit. It's not theoretical. It's what Enron employees experienced, what early WeWork employees experienced, what any number of tech employees experienced during the 2022 correction when stock prices dropped 60-70% alongside mass layoffs.
What the answer tells you:
- Above 20% exposure: Sell to reduce concentration, regardless of your answer to questions 2 and 3. Protecting your financial base takes priority over upside thesis.
- 10-20% exposure: Proceed to Questions 2 and 3 before deciding.
- Below 10% exposure: You have room to be more deliberate. Questions 2 and 3 matter more here.
Question 2: Conviction. Do You Actually Believe This Stock Beats the S&P 500?
Not "do you like working there." Not "do you think the product is good." The specific question is: do you believe your company's stock will outperform a broad index fund over the next three to five years?
That's the actual bet you're making by holding.
The S&P 500 has compounded at roughly 10% annually over long periods. Holding company stock is a concentrated single-stock position. For it to make financial sense, that stock needs to beat what you could get from a diversified index. A lot of engineers confuse familiarity with edge. You know more about your company than a random investor, but you also know less than the market does collectively about where the sector is going, what competitors are building, and how macro conditions will play out.
The cash bonus test: If your company handed you $40,000 in cash today instead of stock, would you immediately use it to buy your company's shares on the open market? Answer that honestly.
I've asked engineers this question for years. Most say no. And the ones who say yes are usually motivated by loss aversion (not wanting to sell something that's already gone up) or identity (believing in the company you work for is emotionally easier than believing in an index). Neither is an investment thesis.
What the answer tells you:
- Honest yes, with specific reasoning: You can justify holding a capped position. See the Diversify section below for how to size it.
- Unsure, or your thesis is "the stock will probably go up": Sell. Vague optimism is not a conviction thesis.
- Honest no: Sell immediately. You're holding a single-stock position in a company you don't actively want to own.
Question 3: Cash Needs. What Is This Money For and When Do You Need It?
This question grounds the decision in your actual life, not just portfolio theory.
Near-term needs (under 2 years):
If you're saving for a house down payment, an emergency fund that doesn't yet exist, debt payoff, or any goal you need to hit in the next 24 months, the answer is sell. Equities are not a reliable short-term store of value. Company stock doubly so. A vesting event is one of the cleanest opportunities to convert a volatile asset into the specific outcome you're working toward.
Medium-term goals (2-5 years):
Diversify. Don't hold concentrated company stock for a medium-term goal. Convert it into a broader index position that gives you market participation with far less single-company risk.
Long-term wealth building (5+ years, retirement):
This is where conviction and concentration thresholds determine the strategy. If your company exposure is below 10% and you have genuine conviction, holding a portion is defensible. If you're above 20% concentration, even a 10-year horizon doesn't justify it. See Question 1.
What the answer tells you:
- Near-term need: Sell, full stop.
- No specific need: Concentration and conviction (Questions 1 and 2) decide it.
The Decision Tree at a Glance
| Concentration | Conviction | Cash Need | Decision |
|---|---|---|---|
| Above 20% | Any | Any | Sell to reduce exposure |
| 10-20% | No | Any | Sell |
| 10-20% | Yes | Near-term | Sell |
| 10-20% | Yes | Long-term | Diversify (capped hold) |
| Below 10% | No | Any | Sell |
| Below 10% | Yes | Near-term | Sell |
| Below 10% | Yes | Long-term | Hold or Diversify |
The pattern here is deliberate. Most paths lead to sell or diversify. Holding a concentrated single-stock position in your employer is the exception, not the default, and it requires clearing all three gates.
What "Diversify" Actually Means in Practice
Diversify doesn't mean "hold some and sell some randomly." It means selling to reach a defined target concentration and reinvesting in a broad index.
The mechanics:
- Calculate your target. If your current company exposure is 30% and your threshold is 15%, sell enough shares to bring it to 15%, then stop.
- Sell systematically at each vest until you hit the target. Automate this if your platform allows it.
- Redeploy into broad, low-cost index funds. Total market funds (like VTI) or S&P 500 equivalents are the standard vehicle.
- Once you're at your target concentration, re-evaluate each vest using the three questions again. New vests can push you back above your threshold quickly if your portfolio hasn't grown commensurately.
The capped position approach: If you have genuine conviction, cap your company stock at a fixed percentage of your net worth. A 5% to 10% ceiling is reasonable for most people. Sell everything above that ceiling at each vest. This lets you participate in upside without making your financial security dependent on the outcome.
Trading windows: Check your equity plan documents. Most public tech companies restrict when you can sell around earnings announcements. You typically have two to four trading windows per year. Know your window schedule and have a plan ready before vesting day, not after.
One pattern I see consistently: engineers who automate sell-on-vest and set a concentration ceiling never call me asking how to unwind a mess. The ones who try to time every window, every quarter, almost always do.
The Tax Move People Miss
The 22% federal supplemental withholding rate your employer uses at vesting is almost certainly not your actual marginal rate. If you're earning $200,000+ in total compensation as a mid-level or senior engineer, you're likely in the 32-37% bracket.
On a $40,000 vest, the difference between 22% and 35% withholding is $5,200 in taxes not captured. On $100,000 in annual vesting, that gap is $13,000.
Bridge it by making quarterly estimated tax payments, adjusting your W-4 to withhold more from your base salary, or both. Missing this is one of the most common and expensive equity compensation mistakes across the tech industry.
Selling immediately after vesting (same-day sale) simplifies the tax situation because there's no capital gain or loss to track beyond vesting. Your cost basis is the vest price and you sell at the vest price. The longer you hold, the more complex the capital gains calculation becomes.
When the Answer Is Always Sell
Some situations cut through the entire decision tree:
- Your company is going through layoffs. The correlation between job loss and stock decline means your double exposure is at maximum risk.
- You don't have 3-6 months of living expenses saved. Concentrated stock is not an emergency fund. Sell and build the fund first. I tell engineers this all the time: if your company stock is also your safety net, you don't have a safety net. You have a gamble.
- Your company stock represents your only real savings. Diversification isn't optional when there's nothing else in the portfolio.
- You're within 5 years of a major financial event (buying a home, retirement, funding a child's education). Sequence of returns risk makes concentration dangerous.
Frequently Asked Questions
Q: Should I always sell RSUs immediately when they vest? Immediate sale is the right default for most people most of the time. It simplifies taxes, eliminates short-term capital gains complexity, and forces you to be intentional about any stock you want to hold. The three-question framework gives you a structured way to identify the exceptions, but "sell immediately and diversify" is a defensible policy for the majority of tech employees regardless of employer or career stage.
Q: What if I work at a company I genuinely believe will 10x? Run it through the framework anyway. Belief in a company's upside doesn't neutralize concentration risk. If your company stock is already 30% of your net worth, the right move is to reduce concentration to a safer level and keep a capped position for upside exposure. Not to hold everything because you're optimistic. Optimism and risk management aren't mutually exclusive.
Q: What happens to my unvested RSUs if I leave the company? Unvested RSUs are forfeited when you leave, with very few exceptions (acquisition scenarios or negotiated departures occasionally include accelerated vesting). This is one reason the decision tree focuses on vested shares. Those are yours regardless of what happens to your employment. Unvested shares should factor into your concentration calculation, but they shouldn't be counted as accessible capital.
Q: Does it make sense to hold for long-term capital gains treatment? It can make sense mathematically if conviction is high and concentration is within range. Compare the tax savings from long-term capital gains rates (0%, 15%, or 20% depending on income) against the risk of single-stock exposure over 12+ months. For most people, the concentration risk outweighs the tax savings. In states like California with no preferential capital gains treatment, the benefit shrinks further.
Q: What are blackout periods and how do they affect my strategy? Blackout periods are windows when employees are legally restricted from selling company stock, typically around earnings announcements. Most public tech companies have two to four open trading windows per year. Know your company's trading calendar and have sell orders ready before they open. Missing a window and indefinitely holding is a common, avoidable mistake.
