As a Chevron employee-turned-financial-advisor, I’m passionate about helping current employees plan for their retirements. With Chevron stock recently hitting a high of $170.901 (as of 03/10/2022), I’ve been hearing from a number of Chevron employees wondering if this is the time to sell. This is the highest price Chevron stock has hit in 10 years, and as the old adage goes, “Buy low, sell high!” Still, there are other considerations for Chevron employees, such as portfolio diversification and ESOP shares.
While no one has a crystal ball to know what the market will do, here’s a summary of what I’ve been sharing with my clients to help them make an informed decision on whether or not to sell their Chevron stock.
1. Remember the value of diversification.
When I first meet my Chevron clients, many are 100% invested in Chevron stock. Almost immediately, I will advise clients to consider the value of diversifying their portfolio.
While Chevron has had a very good run as of late thanks to the political and economic factors beyond the company’s control, the stock has underperformed the S&P 500 (an index of 500 stocks) over the last 10 years, returning an annual 8% compared to the S&P 500’s 14.6% yearly return (data as of 4/01/2022)1.
Had you diversified into one of the most simple indices like the S&P 500, you would have gained an additional 6% per year. While you probably don’t want to switch to being invested only in the S&P 500, you do want to recognize that it is possible to both reduce single stock risk and potentially increase or at least stabilize your investment return at the same time.
2. Consider how global factors impact timing.
But the stock’s up 40%1 this year (data as of 4/01/2022)!
That’s true, but it can also introduce recency bias into our decisions. The war in Ukraine has contributed to high oil prices, which is a primary reason Chevron stock recently shot up to $170.90 (as of 03/10/2022). We’ve seen oil prices skyrocket in the past, and more often than not they will make their way back down as political tensions ease, supply increases, and demand levels.
To remove the impact of the war (and for simplicity’s sake), let’s look at 10 year returns on 12/31/2021 (just three months ago). Chevron’s 10 year return significantly underperformed the S&P 500 at an annual 5% return compared to 16%, respectively1. The stock has certainly surged in 2022, but we encourage you to look past recency bias.
If you’ve been considering diversifying or selling Chevron stock for a while now but haven’t gotten around to it yet, now is a great time to talk to your advisor to see if it makes sense for you.
3. Do NOT sell your ESOP shares.
While ESOP shares are not a benefit for new employees, most employees who were hired over ten years ago most likely still have them. These shares are eligible for a special tax treatment that may be able to save you a significant amount in taxes. This tax treatment is known as Net Unrealized Appreciation, or NUA. In order to take advantage of this strategy, you must maintain the ESOP shares until your retirement date and follow a specific procedure in distributing your retirement assets. Talk to your advisor for a more detailed explanation.
It’s impossible to predict the market, but the best we can do is make informed decisions when given the opportunity. Hopefully, you’ve found this summary helpful — but please be sure to speak with a financial advisor before making a decision to sell. If you have any questions, feel free to reach out to me using this link here!
Wealth Advisor, Warren Street Wealth Advisors
Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor
The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.
- Data from YCharts