The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Shamantha on May 04, 2015, 01:37:31 AM
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My company has started a stock option scheme in 2013, which matures in 2016. You save money on your own bank account to participate. In 2016, you have the option to use your saved money to buy the stock at the 2013 discounted price. Of course the is The Netherlands so you also pay almost 50% tax over the profit between the share price in 2013 and 2016.
My question is: what to do in 2016 when I have the option to buy the stock? I can buy 20.000 worth of stock for 10.000, paying an additional 5.000 in tax. So for 15.000 I will have 20.000 worth of shares. However, it is one single stock. Dividend is quite OK, company is healthy. I can also skip the option to buy the stock and just pocket the profit. In this case I would have my 10.000 back, plus 5.000 profit. This means I have 15.000 to invest in, for example, index funds.
Background information: 48, mortgage will be paid off in 5 years, limited investment portfolio of 40.000 all in single stocks (remnant of a stock based mortgage years ago). Started investing in index funds only this year. Planning for "early" retirement in 10 years time, which is not early by Mustachian standards but still around 8 years earlier than the official date.
So, what to do? Buy the stock or invest in something where the risk is spread out more?
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Buy and sell as soon as possible.
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We have a similar deal, with a 15% stock discount and the ability to sell immediately. We sell pretty much immediatelyevery cycle, pay taxes on our profit, and come out ahead with virtually no risk.
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So two advices, both for selling immediately. At least that is consistent :-)
Why not hold on? Because single stock is risky? Because it does not generate (enough) dividend? Because you do not believe it will have a lasting value?
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Would you go out and buy a lot of company stock on the market right now? By buying through the plan, and not selling ASAP, that is effectively what you are doing. So I guess because a single stock is risky, you have no reason to believe this company will do better than the stock market as a whole, and there is no benefit to holding beyond the minimum period.
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You're already pretty invested in your employer because it pays to keep a roof over your head, etc. So owning company stock that's not free money (as buying it at three-quarters price pretty much is) is horrible diversification.
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Does it have to be 100% keep stock or take the profit? I might do a bit of both if I liked the stock as an investment. The general rule I've heard is for no more than 4% of your portfolio to be in one stock. If the rest of your portfolio is large keeping some in company stock isn't bad.