Employee stock

[Duke03]

I know what the experts say when it comes to employee stock but I'm wondering what likeminded MMM people think.  My company's plan is that they give you a 40% match on all employee stock purchases.  You have to hold it for a year before you can sell unless your employment relationship changes and then you can sell everything immediately.  I've been actively participating in this plan for almost 10 years and there is a decent amount invested at this point.  I've never sold any because I view this account as a top off to my children's college fund and if they get scholarships or have enough in their 529 plan than this will just be a bonus to me later in life.  We've all heard of Enron but my employer has been in existence over 100 yrs and are basically too big to fail.  They are extremely profitable and also pay a very nice dividend. I don't rely on this money for anything because I already max out a pension, 401k and Roth IRA and we also live a 100% debt free life.  Would MMM people just keep the money invested or would they start selling it off and putting it other investments?  I'm 100% invested in stocks and don't believe in buying bonds.  My investment strategy has always been to buy great companies and never sell.     

[NorCal]

Take the stock plus match.  40% is material.

Sell past the one year mark and move it to your target allocation. 

[Heckler]

I'm with NorCal.  Take the match, and move to your target diversified allocation after a year.

We've all heard of Enron, have you heard of Nortel?   Also "in existence over 100 yrs and basically too big to fail".  My SIL had most of her pension in her employer stocks too, it didn't end well for her.

Nortel Networks Corporation (Nortel), formerly Northern Telecom Limited, was a Canadian multinational telecommunications and data networking equipment manufacturer headquartered in Ottawa, Ontario, Canada. It was founded in Montreal, Quebec in 1895 as the Northern Electric and Manufacturing Company. Until an antitrust settlement in 1949, Northern Electric was owned mostly by Bell Canada and the Western Electric Company of the Bell System, producing large volumes of telecommunications equipment based on licensed Western Electric designs.[3]

At its height, Nortel accounted for more than a third of the total valuation of all companies listed on the Toronto Stock Exchange (TSX), employing 94,500 people worldwide.[4] In 2009, Nortel filed for bankruptcy protection in Canada and the United States, triggering a 79% decline in its corporate stock price. The bankruptcy case was the largest in Canadian history and left pensioners, shareholders, and former employees with enormous losses.

[maizefolk]

Agree with those who have posted before me. Get the 40% match, hold for a year, and then sell to reinvest in either index funds or stocks you pick on your own that aren't the same organization that cuts you a paycheck each month.

[VanillaGorilla]

My wife has an IRA with company stock in it from way back when. That company was in business for a long time and was a SP500 darling. It was GE. Poof.

About ten years ago I worked at the hottest local employer. They too had a stock purchase program; the stock tripled while I was there, they've absolutely dominated their market, their moat is ridiculous. I made a lot of money there, but along the way I ran into MMM and index investing. Once I realized the asymmetric risk I was accepting I sold it all when I left the company; in the next few years the stock price doubled from where I sold and all my friends and colleagues were bragging about how rich they were getting holding company stock.

Then the team of senior executives rammed through an acquisition that angered regulators and turned into a colossal disaster. The stock price tanked 80% despite the profits, despite the moat, despite the amazing product and dominant market share. Several friends lost a majority of their invested worth.

I will never again hold a company stock longer than necessary.

[GilesMM]

A 40% match is like a 40% guaranteed return (minus any losses if the stock price declines but are still ahead as long the stock doesn't decline more than 30%).  I would be all over that like a rash.  Borrow money if you have to.  Imagine if you bought $1 million of company stock each year and pocketed an easy $400,000k in match money.  Wow.  Rinse and repeat.

[FINate]

Too big to fail doesn't mean the stock cannot experience a large drop.

Imagine for a second you don't work there, and whatever money you currently have invested there is sitting as cash in a savings account. Would you invest it in this company? There's your answer.

[Heckler]

I'm 100% invested in stocks and don't believe in buying bonds.  My investment strategy has always been to buy great companies and never sell.     

And I’m sure its a great company right now, but what is your asset allocation to this one stock?   If its <1% of your net worth, then by all means, keep it along with the match.  But when it’s > 50% (thats just a random high % I threw out) , you need to understand the high risk of concentration to one stock.

@FINate has the right idea too. 

[Must_ache]

I have a rule that if I do pick a stock (not an ETF) it can only be 1% of my net worth.  I would probably relax that a bit in the case of company stock but not by much.  If your workplace turns into the next Enron you could lose the stock and your job too.

[AJDZee]

A 40% match is like a 40% guaranteed return (minus any losses if the stock price declines but are still ahead as long the stock doesn't decline more than 30%).  I would be all over that like a rash.  Borrow money if you have to.  Imagine if you bought $1 million of company stock each year and pocketed an easy $400,000k in match money.  Wow.  Rinse and repeat.

The 40% contribution from the employer is probably treated as income and taxed at marginal rate. (at least that's how it's done in Canada, I assume US too?) With stock purchase plans people don't realize the tax implications, the stock only needs to drop ~20-25% for any benefit to be evaporated, it's not a full 40%. (or whatever % the 'employer match' is)

I say this though having made the same mistake as the OP, I hold too much company stock as well.
Like many above have recommended, I max out my plan but now sell shares after the 1-year vesting period and take my (after tax) benefit, put it into market ETF.

[MustacheAndaHalf]

Keep the 40% match, very nice.

But I'd suggest comparing your company stock to the S&P 500.  You can search for your company name and the word "stock", and Google will bring up a price chart.  Now click "Compare" button near the upper right, and then click S&P 500 below the graph.  You should now be looking at how your company stock did compared to the S&P 500.

[EliteZags]

absolutely max out the 40% match, but after the lockup period the fact that the funds are already in the company stock shouldn't affect your decision on whether to stay in the stock
ie if those funds were in cash at that point would you use it all to buy that stock, or into a more diverse allocation

[Nutty]

I was investing in company stock.  We have a 10% match and bonus is paid in company stock.  If you are awarded stock and sell within 30 days you create a wash sale with tax implications.  Beware the wash sale.  Selling 1 year after acquisition and getting awarded another lot triggered this for me.  Be warned.

[iris lily]

DH had as much as $206,000 when he retired  in his company stock which did well for the 20 years he had it. It is a nationally known tree company. He bought it at $20,000.

A few years ago he started selling bits of it off just to get out from it.

But ACK!!!! Last year the company decided to buy out everyone who was no longer working there and one day, out of the blue with no warning, issued us a check for $190,000. This was a huge tax hit. I complained about this awful tax event on MMM.

So, that sucked.

TLDR: made a lot of money.Lost a lot of money to the tax man thru forced sale.

[VaCPA]

We've all heard of Enron but my employer has been in existence over 100 yrs and are basically too big to fail.  They are extremely profitable and also pay a very nice dividend. I don't rely on this money for anything because I already max out a pension, 401k and Roth IRA and we also live a 100% debt free life.  Would MMM people just keep the money invested or would they start selling it off and putting it other investments?  I'm 100% invested in stocks and don't believe in buying bonds.  My investment strategy has always been to buy great companies and never sell.     

I can relate OP. My wife has worked for a very large consulting firm for many years. She gets a nice discount on the ESPP and we've been maxing it out for at least the last 10 years. I wouldn't say they're too big to fail, but they are a machine and the stock always seems to go up(aside from big market-wide shifts like 2022 where everything goes down). Looking at my chart, it's had ~400% gain the past 10 years. In that time VTI has gone from $93 to $258, a 277% gain.

It looks like I've made some $ by not immediately selling.

That said the stock just dropped over 10% overnight recently based on poor outlook, which has got me rethinking my buy & mostly hold philosophy. I did sell a couple lots before that happened luckily. Part of the reason I haven't sold alot of it is there is a ton of capital gains locked up in the older stuff, like more than $20k of gains that would be realized if I sold it all. Might be almost time though

I'm not giving you advice either way, just remember for an individual stock extreme volatility is probably hiding somewhere down the line regardless of how stable it appears. Most people's ESPP's are a small % of their portfolio though, so either way not going to make or break you. Enron was a pretty dysfunctional company, where I believe they really pushed employees to put all their retirement into the company's stock. I think they even had electronic stock tickers in the offices so people could see the current price. They evidently were completely obsessed with their stock price. I read the book a long time ago, great read BTW