Austin’s Tech Boom & Your Private Equity: Strategic Investment Moves

Whether you have lived in Austin for several years or are relatively new to Austin, one thing is certain: the city has a booming economy with no end in sight. High-tech companies are setting up headquarters, there is a growing talent pool, and we are experiencing an accelerating surge in economic activity. The region has become a hotspot for innovation and wealth creation.  

Suppose you receive any form of private equity compensation from these companies. In that case, we believe the opportunity to turn this stock-based wealth into a diversified, long-term investment strategy has never been better. 

As an investment advisor in Austin, the Beck Capital Management team specializes in helping high-net-worth investors make educated decisions with their wealth, including private equity compensation strategies that go beyond simply holding onto their employer’s stock. While we don’t focus on just Austin-specific investments, we see the city’s tech-driven growth as a catalyst for building substantial wealth that can last for generations.  

In this blog, we’ll look at various decisions you can make today that may help enhance your future wealth.  

Equity Compensation: More Than Just a Bonus 

If you are a professional at one of Austin’s rapidly growing tech firms, chances are you are receiving some form of equity compensation: 

• Restricted Stock Units (RSUs) 

• Incentive Stock Options (ISOs) 

• Non-Qualified Stock Options (NSOs) 

• Employee Stock Purchase Plans (ESPPs)  

While these incentives can create substantial wealth, they come with various risks to manage: Concentration, taxes, and stock market volatility. 

Employees often hold company stock without a clear strategy, believing it will continue to rise indefinitely. While Austin’s growth may fuel optimism, concentrated positions can backfire if the company underperforms or the tech sector experiences a downturn.  

A financial advisor in Austin can assist you in developing a strategic approach to managing equity compensation, which can help manage risk while seeking to improve the financial potential of your main asset. 

Diversifying Beyond Employer Stock 

One move you can make if you receive some form of equity compensation is to be diversified. For example, consider reinvesting in other asset classes rather than keeping all your wealth tied to your employer’s business performance.  

Here are some examples of ways you can diversify your investments: 

• Alternative Investments – Private equity, private credit, and private real estate investments provide diversification beyond what is available in the public markets. These investments can offer substantial returns with less correlation to the stock market. 

• Sector Rotation – Given Austin’s dominance in technology, reallocating some of your wealth into sectors like healthcare, industrials, or energy can create a more balanced portfolio. Our team of Austin investment analysts specializes in sector diversification.  

• Fixed Income & Bonds – Higher interest rates have made some fixed-income investments more attractive. Allocating a portion of your wealth into municipal, government, or corporate bonds may provide more balance and stability. 

• Global Markets—Many of the best companies are not headquartered in the U.S. A diversified portfolio may benefit by investing in high-quality global companies. Investments in emerging markets can also enhance diversification and potentially improve returns. 

Managing Taxes on Equity Compensation 

Many overlook one key component of equity compensation: the tax implications over time. Understanding the tax treatment of RSUs, ISOs, NSOs, and ESPPs can be the difference between keeping more of your gains and losing an excessive amount to the IRS. 

• Upon vesting, RSUs are taxed as ordinary income, meaning a large grant could push you into a higher tax bracket. Selling some shares immediately to cover taxes might be necessary. 

• ISOs: Offer preferential tax treatment if held for at least two years from the grant date and one year from exercise. However, they can trigger Alternative Minimum Tax (AMT) consequences. 

• NSOs: Taxed as ordinary income upon exercise, making timing crucial to avoid excessive tax liabilities. 

• ESPPs: If holding periods are met, these can provide tax advantages, but discounts should be factored into long-term financial planning. 

Working with an Austin investment advisor can help manage your tax strategy by implementing tax-loss harvesting, charitable giving strategies, and Roth IRA conversions to manage future tax burdens. 

Strategic Selling & Reinvesting 

Selling equity in a structured way—rather than all at once—can reduce excessive tax hits and allow for better reinvestment opportunities. A few approaches include: 

• 10b5-1 Plans – These preset trading plans allow for systematic selling over time, reducing the impact of emotional decision-making and avoiding insider trading risks. 

• Options-Based Hedging – Protective puts and covered calls can help lock in gains while maintaining some exposure to company stock.  

• Donor-Advised Funds (DAFs) – If you plan to donate to nonprofit organizations, contributing highly appreciated stock to a DAF can create tax efficiencies while supporting the causes you and your family care about. 

A Balanced Approach for Long-Term Wealth

With many investment opportunities available, it may call for a balanced strategy, including:  

• Assessing your risk tolerances and timelines to understand how much of your portfolio is tied to tech stocks. What happens if the sector slows? 

• Ensure you have accessible cash reserves to maintain your current lifestyle in the case of a job displacement or market downturn. Additionally, cash on hand can be used to cover new investment opportunities or any unexpected expenses.  

• Partnering with an Austin fee-only investment advisor can help ensure that your financial plan is built in your best interest, not based on commissions or product sales. 

Final Thoughts 

At Beck Capital Management, we help high-net-worth investors navigate complex investment situations. We offer strategies for managing concentrated equity positions, diversifying into investment alternatives, and managing tax consequences.  

Whether you’re looking to manage your stock compensation or explore private market opportunities, we can help you build a strategy designed for long-term success. 

Interested in a personalized strategy for your equity compensation? Contact us today to discuss your options. 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. 

Beck Capital Management does not offer legal or tax advice. As such, this information should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any decision or taking any action, you should consult with a qualified professional. 

Diversification does not guarantee a profit or protect against a loss in a declining market.  It is a method used to help manage investment risk. 

Sector Strategies: Portfolios that invest exclusively in one sector or industry involve additional risks. The lack of industry diversification subjects the investor to increased industry-specific risks. 

Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. 

Alternative investments, including hedge funds, commodities, and managed futures involve a high degree of risk, often engage in leveraging and other speculative investments practices that may increase risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are subject to the same regulatory requirements as mutual funds, often charge higher fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. 

The performance of alternative investments can be volatile.  There is often no secondary market for an investor’s interest in alternative investments and none is expected to develop.  There may be restrictions on transferring interests in any alternative investment.  Alternative investment products often execute a substantial portion of their trades on non-US exchanges.  Investing in foreign markets may entail risks that differ from those associated with investments in the US markets.  Additionally, alternative investments often entail commodity trading which can involve substantial risk of loss. 

If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.  I suggest that you discuss tax issues with a qualified tax advisor.   

Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost. 

Options are not suitable for all investors. There are risks involved in any option strategy. Individuals should not enter into option transactions until they have read and understood the option disclosure document titled “Characteristics and Risks of Standardized Options,” which outlines the purposes and risks of option transactions. This booklet is available from your Financial Advisor or at http://www.theocc.com/about/publications/character-risks.jsp.  Supporting documentation of claims will be supplied upon request.