So now you’re allowed to sell your stock options. Congratulations! You did it. You went to work at a start-up. You said no to a normal job, you said no to law school, you said no to a life where you didn’t have to have four roommates in a two-bedroom apartment with bathwater that comes out brown. You took a lot of your salary in stock options, then crossed your fingers and worked your tush off. And then suddenly…
Your stock was actually worth something! And then suddenly…
You were actually allowed to sell it! In exchange for nontheoretical money! And then suddenly…
You realized you have no idea how to sell all those stock options. Or how much of your stock to sell. Or where to put the proceeds (after you buy your hover board and your bacon of the month club membership, of course).
Yeah, we’re talking to you, people who work at Shopify. Because today your lockup period is over. Because today hundreds of thousands of shares could (relatively) instantly turn into hundreds of millions of dollars. And yeah, because you should probably use a smart, simple, and transparent fintech company to sell your stock and invest the non-bacon portion of your proceeds so you can save an extra $1.3 million dollars* in the bank. We know a place like that.
But even if you don’t work at Shopify, it’s worth understanding how to sell stock options. Because it’s not just start-ups that understand stock options are a way to keep employees invested while not actually laying out cash. Unless you consider companies like Google or Royal Bank of Canada to be start-ups.
OK, So How Do I Actually Sell This Stuff?
The first thing to do is let yourself off the hook. It’s OK that you don’t know all the rules governing the sale of stock options. They’re relatively arcane, and you were probably too busy coding and doing conference calls to learn the difference between class A shares and class B shares.
The second thing to do is get coached up now.
Selling your stock may not be as simple as you thought it would be. But it’s not that hard, either. Here are the four steps you’ll need to start the process:
Shopify (and all companies that issue stock options) has a finance department. Notify the finance department that you want to sell some stock, and tell them precisely how much of it you’d like to sell.
The finance department will convert (for free) your class B shares (that’s the stock they give to employees; those shares come with voting rights, but not, as you might say, selling rights) to class A shares (the shares that trade in stock markets).
Collect your Direct Registration System (DRS) statement from the finance department. The DRS statement is a document that says how many shares you own.
Give your DRS statement to a licensed broker. Brokers are the only people permitted to sell your stock. They sell your shares, and boom: You’re a millionaire. Or a thousandaire, as the case may be.
Great, So Any Broker Will Do, Right?
Well, as you may have guessed, we have an opinion on this. To illustrate our opinion, we’re going to use an example of an actual Shopify employee who decided to have Wealthsimple help him decide what to do with $500,000 worth of his shares.
First he had to decide how many of his shares to sell. Having a huge proportion of your wealth in a single stock is extremely risky. A good rule of thumb is to locate no more than 10% of your money in securities from any one company; the rest should be diversified. But there are other factors to consider—whether you still work at the company, how old you are, what you plan to do with the money, what type of account you should set up, and more. The bottom line is you may need to talk to someone. An advisor at Wealthsimple will get on the phone with you to make a plan, gratis.
We advised the employee in our example to sell $450,000 of his Shopify shares
A lot of brokers charge commission of 1 to 2% to sell your shares. In our case that would be $5,000 to $10,000 in fees. Many brokers or advisors will waive those fees if you keep a portion of your money in an account at the same investment company. Wealthsimple is one of those companies.
The employee in our example paid nothing in fees to sell his Shopify stock.
You shouldn’t count on timing the sale of a stock precisely. But there are clever ways to sell. You'll want to protect some of your gains from the CRA by tax planning upfront. We also know there's emotion involved, and you might be pretty upset if the stock hit an all time high the week after you sold. So we sometimes do dollar cost averaging, which means selling a part of your holdings systematically over time.
A Wealthsimple advisor helped with tax planning, and setup an automatic sale of his Shopify holdingsover time.
Once you sell your shares, you’re going to want to know what to do with the rest of your money. And being a current or former employee of Shopify, you'll understand the advantages of a company that develops software to keep costs low, instead of maintaining bricks-and-mortar shops and paying back-office workers for menial work. Using Wealthsimple’s customizable algorithms to create an ETF portfolio will help you gain wealth while saving you, on average, 1.5% in fees compared with a traditional financial firm. Over the course of the life of your investments, that’s a huge difference.
If the employee in our example puts his $450,000 in Wealthsimple, waits 30 years, and averages returns of 7.5% per year, he will wind up with $1.355 million more than if he put it in an account with a traditional firm ($3,939,729 versus $2,584,571).
Now go take a nap. You’ve earned it. Your money will still be there when you wake up—and you’ll probably have more of it by then.
But before you take that nap, you're going to have to sign up. Go ahead, Shopify employees, get started right now.
Wealthsimple uses technology and smart, friendly humans to help you grow and manage your money. Invest, save, trade, and even do your taxes in a better, simpler way.