If you have worked for a tech startup, you have probably earned incentive stock options (ISOs) as part of your compensation. ISOs are notoriously difficult to understand, let alone to strategize. In most cases, it frankly doesn’t matter, because most startups will not become spectacularly successful, and therefore, the options will never become a dominant part of the money you made during your stint. But, if you are lucky enough to hitch a ride on a unicorn 🦄, it can get very complicated, indeed.

The tax treatment of ISOs encourages employees to take financial risks, in return for potential tax advantages. If there were no tax advantages to be gained, it would be advantageous in all cases to exercise options as late as possible—either just before expiration or when you want to sell the stock—because you would have maximal certainty of the value of the shares. But because there are holding periods for tax advantages and triggers for taxable events, there is pressure to exercise earlier. This means locking up cash for years, before knowing when, or even if, the shares can be sold for profit.

The one thing you must understand about ISOs is the concept of a qualifying disposition. I’m going to first explain what that means, and then present a brief case study from my own situation.

Continue reading “Employee Equity: Understanding “qualifying disposition” is a must” →

I have no financial training or credentials. This article represents my understanding from synthesizing many sources of information, but I am likely misusing terminology, and I may be factually incorrect on some points. Apply this information at your own risk.

Don’t invest in anything you don’t understand.

This is the first rule of investing. In a world where people want your money, it’s a good way to avoid becoming mark, swindled out of your life savings. In other words, it’s important to understand:

• What your money will be used for
• Where the new money to pay your return-on-investment will come from
• What the risks are

If investing for building personal wealth has a second commandment, it is to continually pump excess income into low-cost index funds that track a large chunk of the US stock market. It’s not the purpose of this piece to justify this, but mountains of research indicates that this almost absurdly simple strategy—when executed with discipline and an iron stomach—has historically outperformed pretty much every complex investment strategy implemented by active traders, especially once fees are accounted for ¹.

I have found these two pieces of advice to be in conflict. This piece is my attempt to sort this out.

Continue reading “Why does the world want index investors?” →

Continue reading “Book review: The Index Card” →

Going into buying a home, I had to wrap my head around a lot of things. There was finding the home itself, then the whole process of negotiating the offer, the mortgage, and then all the thoughts of what you want to do when you actually move in. A big part of the financial aspect of the purchase and mortgage is projecting your monthly payments. Property taxes are a significant part of this.

The thing is, even once you pay your mortgage down, you’ll still be paying those property taxes in perpetuity. In a state with high property taxes like New Jersey, it’s a sizable percentage of what you might pay in rent some other places. I was aware of property taxes. I assumed they’d be predictable and logical. Boy was I wrong.

Disclaimer: Per usual, I have to make clear that I am (obviously) not an expert on this topic. This piece reflects my growth from zero understanding, and hopefully underscores that you should get professional advice as you make your own financial decisions. Comments and corrections are very welcome!

Continue reading “Property taxes, who knew?” →

I was meaning to post this a while ago, but these are the notes I took when I was shopping for a mortgage and closing the purchase of our first house. It was quite a process. As a first-time borrower, I felt like I was at constant risk of these expert lenders taking advantage of my naiveté, especially given all the stories from mortgage crisis. So, I spent a lot of time reading and double-checking. I try here to lay out what I took away from the process, without biasing it toward any decisions my wife and I made pertaining to our own situation.

Original Disclaimer: These are the notes of one person (me) who has bought exactly one home with exactly one mortgage. I am not an expert. I have no qualifications. I’m just a dude. This might be useful as a starting point, but I highly suggest you do your own research and confirm your conclusions with advice from an expert you trust.

Updated Disclaimer: I now actually work for a mortgage company! I’m not a licensed loan officer, so I’m still not qualified to give advice. But I know far more about mortgages than I did in 2017. I’ve made some slight updates, but the knowledge I’ve gained at work largely has validated my reflections from a few years ago.

Also, note that this piece reflects my experience shopping for a conforming mortgage. It’s the most common type of mortgage, but there are others:

• FHA loans – these have expanded criteria, to broaden access to home ownership.
• VA loans – these are for American Veterans.
• Jumbo loans – these are for loan amounts that exceed the conforming loan limit for the county the property is in.

I don’t have personal experience with these other loan types.

Continue reading “Notes on mortgage shopping” →