Key facts
- Elite tech workers are increasingly selling stock awards due to concerns about an AI bubble and high valuations.
- Wealth managers are advising clients on strategies to cut risk, diversify, and plan for potential market downturns.
- Common strategies include structured selling of stock awards, tax-loss harvesting, direct indexing, and variable prepaid forwards.
- A small percentage of clients are 'splurgers,' using stock awards for significant purchases like real estate.
- Some are investing in commercial real estate or REITs, with data center and healthcare-linked REITs showing strong performance.
Elite tech workers, particularly those in the AI sector, are expressing anxiety about a potential bubble and are actively seeking strategies to manage their rapidly grown wealth. Wealth managers report that clients at companies like Anthropic, OpenAI, and major tech firms are concerned about high valuations and are looking to cut risk and diversify their portfolios.
Nicholas Garcia, a principal wealth advisor at Compound Planning, notes that fears of an AI bubble are prevalent in client conversations. He estimates that about 5% of his clients are panic sellers, a number he expects to grow. The rapid increase in wealth is evident in market performance, with the Nasdaq 100 climbing 91% over the last five years and US household stock wealth significantly increasing since the debut of ChatGPT.
At Mercer Advisors, concentration risk in the tech sector is a primary client concern. Similarly, Tidemark Financial Partners has been inundated with clients worried about an AI bubble. Advisors are observing a split in client approaches: some are looking to reduce tech exposure, while others are preparing for a potential downturn by increasing it.
Advisors have identified five key money moves becoming more common among their Big Tech clients. These include structured selling of stock awards, often with plans to liquidate once shares reach a certain level, aiming to lock in quality of life and cover future expenses. Strategies to mitigate tax implications, such as tax-loss harvesting, direct indexing, long-short strategies, and variable prepaid forwards to defer capital gains tax, are also being employed.
A smaller segment of clients, estimated at 5% to 10%, are characterized as 'splurgers,' cashing out significant portions of stock awards for large upfront expenses. Real estate, including primary homes in the Bay Area, vacation homes, and luxury cars, are common purchases. Advisors note that these clients often require coaching to manage lifestyle creep.
Another strategy involves investing in real estate, including commercial property or REITs. REITs linked to data centers, self-storage, and healthcare have performed well, with lodging and resorts being the best-performing segment in the first half of the year. The prospect of declining interest rates is also fueling interest in multifamily properties, seen as a potentially less volatile asset class.