Your RSUs vested at, say, $150 a share. The stock is now at $95. You haven't sold, because some part of you is waiting for it to 'get back to where it was' before you do anything.
Short answer: the vest-day price should not be the thing that decides whether you sell. Whether you hold, sell, or sell gradually should depend on how much of your net worth is tied up in one company's stock and how much conviction you actually have in that company today, not on what the price happened to be on the day the shares landed in your account.
This post covers why the vest price feels like a meaningful line in the sand even though it isn't, why a stock being down doesn't automatically mean your risk is lower, a brief note on the tax side of selling at a loss, and a practical checklist for this specific situation.
Table of contents
- The anchoring trap: why the vest-day price feels meaningful (it isn't)
- 'It's already down' doesn't mean the risk is lower
- The tax side, briefly
- A decision checklist for an underwater vested position
The anchoring trap: why the vest-day price feels meaningful (it isn't)
When your RSUs vested, the fair market value of the shares on that date became two things at once: the amount added to your taxable salary income for the year, and your cost basis (cost of acquisition) for capital gains purposes going forward. That number is real and it matters for your tax return.
What it does not carry is any information about what the stock is worth today or where it's headed next. The market doesn't know or care what price your shares vested at. But your brain does, and that's the problem.
This is a well-documented pattern in behavioral finance called anchoring: once a number gets fixed in your head as a reference point, usually the first or most emotionally salient number you saw, you keep measuring everything against it, even after it stops being relevant.
For RSU holders, the vest price becomes that anchor. 'I'll sell once it's back to $150' feels like a plan, but it's really just a way of avoiding a decision until an arbitrary number reappears on a screen.
A few reasons the vest price specifically is a bad anchor to hold onto:
- It's arbitrary from the market's point of view. It reflects whatever the stock happened to be trading at on one specific date determined by your vesting schedule, not any assessment of fair value.
- 'Waiting for breakeven' isn't a strategy, it's a rule that changes your selling decision based on your own cost basis rather than the company's prospects. A rational seller asks 'would I buy this stock today at this price, knowing what I know now?' not 'has it gone back up to what I originally had?'
- The anchor can keep moving the goalposts. If the stock does recover to $150, there's often a new temptation to wait for 'just a bit more,' because now $150 feels like the new floor rather than the original target.
The question worth asking instead is simple: if you were handed the cash value of these shares today, with no history attached, would you choose to buy this much of this one stock with it?
If the answer is no, the fact that you're currently down on the position isn't a reason to keep holding it.
'It's already down' doesn't mean the risk is lower
A second, related trap is the belief that because a stock has already fallen, there's less downside left, and therefore less reason to worry about concentration. This reasoning treats the drop itself as if it were a kind of insurance.
It isn't. Owning a large position in one company's stock means your financial outcome is tied to that one company's fortunes, regardless of what price you're in at.
A 30% further decline from $95 hurts exactly as much in percentage terms as a 30% decline from $150. Nothing about the stock already having fallen makes another leg down less possible.
Worse, if the stock fell for company-specific reasons, a product miss, a leadership change, slowing growth, increased competition, then the fundamentals that drove the price down may still be in play.
In that case the specific risk you're exposed to (this one company underperforming) may have gone up, not down, even while the price has fallen.
A cheaper stock is not automatically a safer stock. It's still one company, and you likely already have a second, larger exposure to that same company: your paycheck. If the business weakens further, both your equity and your job security can be hit by the same event.
This is the core distinction worth internalizing: price movement and concentration risk are two different things. Being down doesn't diversify you. Only actually selling shares and reallocating the proceeds does that. If you already have a large single-stock position from RSUs, the fact that it's underwater doesn't reduce how exposed you are, it just changes the price at which you're exposed.
For a broader framework on figuring out how much single-company exposure is too much, see how much company stock is too much for a tech employee.
The tax side, briefly
Taxes shouldn't be the main driver of this decision (concentration risk usually matters more than tax optimization), but it's worth knowing the basic mechanics so they don't accidentally tip your decision the wrong way.
When you sell RSU shares for less than their fair market value on the vesting date, the difference is a capital loss.
No capital gains tax is payable on that sale, and the loss can generally be used to offset capital gains elsewhere, subject to the applicable set-off rules. Capital gain or loss on RSU shares is simply sale price minus cost basis, where cost basis is the FMV on the vesting date, before any withholding.
Whether that loss is short-term or long-term depends on your holding period from the vest date: up to 24 months is short-term capital gains/loss (STCG), taxed at your income slab rate if it were a gain, and over 24 months is long-term (LTCG), taxed at 12.5% without indexation if it were a gain.
That classification matters because Indian tax law restricts which gains a loss can be set off against: broadly, a short-term loss can be set off against both short-term and long-term gains, while a long-term loss can only be set off against long-term gains, not short-term ones.
Unused losses can be carried forward for up to 8 years, provided you file your return (ITR-2/3) on or before the due date.
Read more: Using capital losses from RSUs to offset gains.
A decision checklist for an underwater vested position
Use this to work through the decision systematically rather than defaulting to 'wait and see.'
Sell most or all of it if:
- The position is a large share of your net worth (a common rule of thumb from concentration-risk discussions is that any single stock making up a large chunk of your investable assets is worth actively managing down, see the linked post above for how to think about the threshold for your situation).
- You wouldn't buy this stock today, at today's price, if you were starting from cash.
- The decline was driven by company-specific issues (competitive position, management, growth trajectory) rather than a broad market or sector pullback.
- You're holding mainly because of the vest price, and you notice you can't articulate a current, positive reason to hold beyond 'it might come back.'
Hold if:
- The position is a genuinely small part of your overall net worth, so the concentration risk is limited regardless of the price move.
- You have specific, current conviction in the business (not nostalgia for the vest price) based on how it's performing today.
- You have a defined re-evaluation point (a specific date or event, like the next earnings report) rather than an open-ended 'wait for breakeven.'
Sell gradually if:
- You're unsure and want to reduce risk without committing to a single decision point. Selling a fixed portion on a schedule (for example, a fixed number of shares or a fixed percentage each month or quarter) removes the pressure of picking one 'right' day to sell and avoids the trap of needing the price to hit a specific number first.
- You want to manage the tax-lot and loss-timing considerations from section 3 across more than one tax year.
- You're rebuilding conviction after a decline and want to reduce exposure while you watch how the business performs, rather than exiting all at once.
Whichever path you take, the decision should be driven by your concentration in the stock and your current view of the company, not by the number your shares happened to be worth on vest day.
