History has a way of repeating itself. In the 1990s, Microsoft saw its stock soar, creating an explosion of Eastside wealth and the emergence of the so-called “Microsoft Millionaires.” I recall my own consulting work at the company at the time, conducting seminars on stock options that were often better attended than a guest appearance by Dr. Ruth, as employees planned for their newfound financial bounty.
Fast-forward 30 years, and we’re seeing a new wave of wealth driven by the next evolution of tech. With the third-highest number of technology-related jobs per capita in the country, its scale — with more companies, more employees, and more value — is poised to continue its fast-paced path.
In 2020 alone, Redmond-based Microvision’s stock gained more than 700 percent, and major Eastside employers such as Microsoft, T-Mobile, and Amazon experienced double-digit price growth. By the end of last year, five of the area’s unicorns — those fast-growing ventures valued at $1 billion or more — were spread along the eastern shores of Lake Washington.
The financial future for technology executives and other high-paid professionals looks pretty good on paper. With so much wealth, often held in a single stock, it’s not surprising few see incentive to change. After all, the best way to build fortunes is with concentrated holdings. Why would they exercise options or dilute their positions when they’re sitting on the best investment of their lifetimes?
This is the same question many Microsoft Millionaires were asking. The answer is that the best way to lose fortunes is also with concentrated holdings, and there are signs that change is coming, whether you like it or not.
As much as we’re seeing a repeat of fast-growing wealth, we’ll likely also see a repeat in market downturns that, depending on how you’re positioned, could wipe out a good deal of your holdings. The tech boom of the ’90s was followed by the tech bust of the early 2000s. The Great Recession of 2008 followed years of economic growth. Even as tech stocks skyrocketed in 2020, there remains a disconnect between Wall Street and Main Street. At some point, a reconciliation will come.
With a new administration in Washington, D.C., there also will likely be changes to the tax code, impacting high earners with higher taxes on capital gains, regular income, and wealth transfers. Many benefits of the Tax Cuts and Jobs Act of 2017 are already slated to expire in 2025 and 2026, in particular those related to estate and business income taxes.
The upside — especially for those with equity compensation in the form of restricted stock units (RSUs), restricted stock awards (RSAs), stock options, and other financial tools — is the opportunity for planning. With the right plan, you can maximize lifestyle, family, and philanthropic goals while minimizing risk. And you can do it in a tax-efficient way.
History doesn’t discriminate. For high earners hoping to hold on to what they’ve earned, now is a good time to start putting new plans in place. These plans might be as basic as diversifying into different assets, such as bonds, real assets, or hedge funds. They might be conducting cash-flow analysis to prepare for a lifestyle 20 years down the road. Or they might include even longer-term strategies that might make sense to start putting in place now, such as establishing trusts or foundations that carry your legacy forward.
Whatever they are, don’t get caught with an unbalanced portfolio. When you’re bullish about your company’s prospects, it’s natural to be optimistic. When the future is less certain, your plan is your best protection.
Scott Butterfield of Woodinville is a CPA and financial advisor to high-net-worth individuals and families at Laird Norton Wealth Management. He can be reached at s.butterfi eld@lnwm or (206) 464-5100.