Canada - Employee Share Ownership Advice

[jopiquant]

My company allows me to put up to 10% of my gross income into our publicly traded stock. Then in year two, they'll match 20% whatever I put in in year one, in hard dollars, and in year three 15% of year 1 and 20% of year 2. So I have some money there and the share price has fluctuated 40% in the four years I've been here.

It's on the lower end again and it's anybody's guess where it's headed. The company's strong from a backlog perspective, but we've been hit by oil and gas as well as some ongoing press issues.

I'm already maxing out my RRSP separate to this. Any advice? Thank you!

[PEIslander]

Are you able to assess the current value of the total account vs. what you personally have put into it? Hows that looking? (Hopefully the employer contribution is offsetting any weakness in the stock's performance).

I'm in a similar situation with my employer's stock purchase plan. Thankfully our company stock has been performing better than the TSX (but worse than the S&P) so I shouldn't complain. The match really bumps up the effective performance of the account. I do keep an eye on the stock, monitoring analyst recommendations. If they were recommending investors not hold the stock I'm sure it would give me cause to think about reducing my position. I do have concerns that my position in the company stock not get too large relative to my other investments. (I'd hate to be like the Nortel or Enron employees who had most of their life savings in their company stock when those companies went bankrupt).

Another thing I recently learned about our company stock purchase plan relates to the stock they do their match with. The company transfers stocks from their holdings and doesn't buy their contribution on the open market. The stock they give effectively has a very low cost basis to them and so the employee stock purchase plan actually costs them very little. Perhaps someone here better understands how this works or can set me straight if I'm getting it wrong.

[jopiquant]

Thanks PEIslander. I'm getting close to just breaking even instead of ahead, after accounting for the employer match. We've been downgraded to hold from buy, but our target price is about 15% higher than what we're trading at.

[lostamonkey]

If I was you, I would max this out.

Year 1
-10% contribution
-No withdrawal

Year 2
-10% contribution
-No withdrawal

Year 3
-10% contribution
-Withdraw year 1 money as soon you get the 15%

Year 4
-10% contributions
-Withdraw year 2 money as soon as you get the 15%

You are taking a risk by participating in this plan but IMO it is worth it.