Ameriprise Financial Articles

CAPITALIZING ON EMPLOYEE STOCK OPTIONS

By: Edward Pontarelli

A key component of compensation for many individuals who work for privately-held or public companies is the opportunity to own company stock. is is o en made available through an employee ownership plan. If your employer provides you with this bene t, it’s important to understand how the employee stock options (ESO) work, and the most e ective ways to take advantage of them.

e opportunity to own shares in the rm you work for can, at times, be extremely valuable. In other circumstances, the actual nancial bene t may turn out to be limited. Much depends on the level of success the company enjoys. One of the most appealing aspects of stock options is that it gives you a greater stake in the potential success of the company.

PRICES AND DATES TO KNOW

Before you make any decisions about how to take advantage of stock options, you need to understand the price you will pay for shares of company stock and the timing of those purchases. is is key to determining the ultimate bene t the ESO plan may have to o er. Here are some of the critical terms to understand:

STRIKE PRICE (also known as grant price or exercise price) – this is the price you will pay to purchase shares of stock utilizing the option. e price and number of shares available to you is speci ed at the time the company grants the option.

MARKET PRICE – the current value of a share of stock. is is important to know at the time you intend to exercise your option to buy company shares. VESTING DATE – a er receiving the option, you may have to wait for a speci ed time period before you can exercise it. When the vesting date passes, you may choose to purchase the stock at the strike price.

EXPIRATION DATE – once the option is fully vested, you may choose to purchase the stock at any time before the expiration date.

TIMING MATTERS

e real bene t of holding stock options is the discount you receive on purchasing company stock. is happens when your company’s market share price has risen signi cantly above the strike price speci ed in your option. You can derive a meaningful nancial bene t as soon as you purchase shares – a concept o en referred to as the option being “in the money.”

If the market value of the stock stays below the strike price by the time you reach the expiration date, you may want to let the option expire. In this instance, you could consider purchasing company shares on the open market at the market price.

Once the vesting date is reached, you can purchase shares in several ways. You can pay cash for the actual shares or you can swap shares of the stock that you already own to cover the purchase cost at the strike price.

If you purchase shares, they become part of your portfolio and your overall nancial strategy. As you exercise your stock options, it’s important to make sure you do so with your overall risk tolerance in mind. Holding too much of a single stock in your portfolio increases your exposure to risk, and is a possibility if you accumulate signi cant shares of company stock over time. Review your options with a nancial professional who can help you capitalize on the bene ts of having an ownership stake in your employer’s rm while maintaining a well-diversi ed portfolio.

Edward Pontarelli Jr, APMA®, CRPC® is a Financial Advisor and Managing Director with BeaconPoint Wealth Advisors a financial advisory practice of Ameriprise Financial Services, Inc. in Providence, RI. He specializes in fee based financial planning and asset management strategies and has been in practice for 20 years.

Please contact him at www.ameripriseadvisors.com/ team/beacon-point-wealth-advisors or (401)824-2532.

1 Citizens Plaza Ste 610 Providence, RI 02903.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.

Have Questions About Disability Income Insurance?

Here Are Some Answers.

By: Carrie McPherson

An o en overlooked but key area of your overall protection strategy is the need to protect your income stream if you are unable to work due to illness or injury. ink about the nancial impact if you were unable to earn a paycheck for an extended period.

Disability income insurance is designed to protect against that risk but is a type of insurance many aren’t familiar with. Here are answers to many questions we frequently hear from clients:

Q: What is the chance I might be subject to a disability-related event?

A: It may be more likely than you think. It is estimated that more than one in four of today’s 20-year-olds will miss at least of year of work because of a disabling condition before they reach retirement age. 1

Q: What if I don’t work in a high-risk occupation?

A: e fact is that injuries can happen anywhere, not just on the job. An injury could result from a car accident, a bad fall, a mishap working around the yard or even a sport. en, there are more debilitating illnesses. COVID-19 reminded us all of our vulnerability and that some illnesses have debilitating e ects for an extended period.

Q: What can disability income insurance do for me?

A: Disability income insurance provides a source of monthly income to replace what is lost if you are unable to work. is is important to help pay for your household expenses on an ongoing basis. Funds can also help you keep pace with savings for monumental goals in your life such as retirement or your child’s college education.

Q: Do I really need disability income insurance? What about the financial support from my occupation or the Social Security disability program?

A: Employer-provided policies, if o ered, o en pay the equivalent of about half your salary, but these bene ts are generally subject to income tax, leaving you with a gap to bridge to meet your needs. Social Security bene ts are not always easy to qualify for, may take months before payments are approved and o en pay only a modest amount (the average monthly bene t is $1,2341). ese two options leave large gaps for most people.

Q: What financial support would I receive from a disability income policy I purchase?

A: Disability income insurance will typically pay in the range of 60 percent of your income, depending on how your policy is structured. Premiums are paid with a ertax dollars, so the bene ts will not be taxable. On an a ertax basis, the disability income bene t should come very close to matching your regular income from work.

Q: Will a disability income insurance policy protect me if I can’t work in my specific field or if I can’t work at all?

A: is depends on the type of policy you choose. With an “own occupation” policy, you can collect bene ts if you are unable to work at your regular occupation. With an “any occupation” policy, you are only eligible to collect bene ts if you can’t work at all.

Q: How soon do benefits begin?

A: is also depends on how your policy is structured. Policies come with an elimination period, ranging from 30 days to 180 days. is is similar to a deductible on your auto insurance. For example, if you have a 60-day elimination period, you won’t receive bene ts for the rst two months you are disabled. A longer elimination period will lower the cost of your policy but widen the income gap you will need to be prepared to ll.

Learn more today. Disability income insurance should be included in a review of your overall protection needs. Consider talking to your nancial advisor or insurance specialist about what it can do for you.

1 Social Security Administration, “ e Faces and Facts of Disability.”

Carrie A. McPherson, CRPS®, CDFA® is a Financial Advisor and Certified Divorce Financial Analyst with BeaconPoint Wealth Advisors, a financial advisory practice of Ameriprise Financial Services, Inc. in Providence, RI. She specializes in fee based financial planning and asset management strategies and has been in practice for 13 years.

Please contact her at www.ameripriseadvisors.com/ team/beacon-point-wealth-advisors or (401)824-2557.

1 Citizens Plaza Ste 610 Providence, RI 02903.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.