Author Topic: Is my company's stock purchase plan worth it?  (Read 5661 times)

the_fella

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Is my company's stock purchase plan worth it?
« on: July 13, 2015, 04:00:40 PM »
We purchase the stock at market rate, but pay no fees. I'm just not sure if it would even be worth my time since it's at market rate. Fwiw, I'm 24 years old.

Kernel Fielding

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Re: Is my company's stock purchase plan worth it?
« Reply #1 on: July 13, 2015, 04:22:21 PM »
I'm not an expert on employee stock plans by any means, but that doesn't sound like a very enticing one to me.

To give you a for instance, my employer's ESPP issues stock at the lower market price at the start or end for the six month period of the plan, and discounts that price by another 15% when the purchased stock is issued.
« Last Edit: July 14, 2015, 06:17:26 PM by cuthbert »

MoonShadow

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Re: Is my company's stock purchase plan worth it?
« Reply #2 on: July 13, 2015, 04:41:52 PM »
What company?

clifp

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Re: Is my company's stock purchase plan worth it?
« Reply #3 on: July 13, 2015, 04:51:32 PM »
We purchase the stock at market rate, but pay no fees. I'm just not sure if it would even be worth my time since it's at market rate. Fwiw, I'm 24 years old.

Most ESPP provide a discount of 10-15% off the fair market rate.  Many also let you buy stock at the lower of the beginning or end of the quarter or 6 month period.  With those provision they are a great deal. Without those features there is no need to buy company stock just because there isn't a fee associated with them.

MoonShadow

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Re: Is my company's stock purchase plan worth it?
« Reply #4 on: July 13, 2015, 04:59:20 PM »
It depends upon how the company stock is set up within the 401k, as well as whether you would invest into that company otherwise.  Personally, I don't invest hardly anything into the company I work for, due to avoiding the Enron effect.  However, there is a possibility that, if your company doesn't provide discounted stock for a 401k, that company dividends are payable as regular income at any age, without the 10% early distribution penalty.  This can be a useful tool if retiring before 59.5, and vital if retiring prior to 55.

The key question is, would you invest in your company if you didn't work for them?

johnny847

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Re: Is my company's stock purchase plan worth it?
« Reply #5 on: July 13, 2015, 05:01:15 PM »
That sounds terrible. If you look around hard enough, there are ways to get commission free trades on a limited basis (certain number of trades per month, sometimes you need at least $X at the brokerage account, etc.)

Plus biasing your portfolio towards your employer is an additional risk on top of the risks involved in buying any one company's stock. Your chance of being laid off and stock performance are now correlated.

fb132

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Re: Is my company's stock purchase plan worth it?
« Reply #6 on: July 13, 2015, 05:01:26 PM »
It depends on the company, but I still wouldn't put more than 5-10% of my investments towards one company's stock. Under 5%, it's ok I guess if you really want to, but I would consider it as gambling money.
« Last Edit: July 14, 2015, 04:51:57 AM by fb132 »

forummm

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Re: Is my company's stock purchase plan worth it?
« Reply #7 on: July 13, 2015, 06:31:33 PM »
We purchase the stock at market rate, but pay no fees. I'm just not sure if it would even be worth my time since it's at market rate. Fwiw, I'm 24 years old.

Hell no. Why would this even be a good deal? You can buy stock for free or $1 through various brokers. You don't want to put your savings into your company's stock unless they give you a serious deal on it. If your company hits hard times, you lose your savings and your job. Not good.

bdbrooks

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Re: Is my company's stock purchase plan worth it?
« Reply #8 on: July 13, 2015, 07:29:40 PM »
There are 2 main advantages and 2 main disadvantages to ESPP.

Adv 1: discount off of market rate
Adv 2: discount is applied to the lower of the starting or ending of the period
Dis 1: undiversified
Dis 2: correlation between poor stock performance and losing your job

Not all ESPP's have both or either of the advantages, but they all have the disadvantages.
I would stay away. About the only advantage I can think of is called Net Unrealized Appreciation (google NUA). You can basically get tax advantages if the stock appreciates greatly. Even though this is a potential advantage, it isn't worth the disadvantages.

MoonShadow

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Re: Is my company's stock purchase plan worth it?
« Reply #9 on: July 13, 2015, 08:05:19 PM »
There are 2 main advantages and 2 main disadvantages to ESPP.

Adv 1: discount off of market rate
Adv 2: discount is applied to the lower of the starting or ending of the period
Dis 1: undiversified
Dis 2: correlation between poor stock performance and losing your job

Not all ESPP's have both or either of the advantages, but they all have the disadvantages.
I would stay away. About the only advantage I can think of is called Net Unrealized Appreciation (google NUA). You can basically get tax advantages if the stock appreciates greatly. Even though this is a potential advantage, it isn't worth the disadvantages.

Careful, now.  You are assuming that it is an ESPP, it might not be...

http://people.opposingviews.com/espp-vs-esop-9147.html

the_fella

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Re: Is my company's stock purchase plan worth it?
« Reply #10 on: July 14, 2015, 11:44:56 AM »
It depends upon how the company stock is set up within the 401k, as well as whether you would invest into that company otherwise.  Personally, I don't invest hardly anything into the company I work for, due to avoiding the Enron effect.  However, there is a possibility that, if your company doesn't provide discounted stock for a 401k, that company dividends are payable as regular income at any age, without the 10% early distribution penalty.  This can be a useful tool if retiring before 59.5, and vital if retiring prior to 55.

The key question is, would you invest in your company if you didn't work for them?

This stock isn't purchased within a 401(k), though I would imagine it can be.

seattlecyclone

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Re: Is my company's stock purchase plan worth it?
« Reply #11 on: July 14, 2015, 12:14:03 PM »
No. Just no. They're offering you no real incentive to buy this stock through the program since you can buy it for the same price at a brokerage of your choice. You shouldn't hold lots of your company stock (or any individual stock) anyway. Use your money to buy index funds instead.

Brilliantine

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Re: Is my company's stock purchase plan worth it?
« Reply #12 on: July 14, 2015, 03:13:33 PM »
I guess maybe the company thinks that they are doing you a favor in the form of automatic paycheck deductions "so that you don't have to think about it. We save your money for you before you can spend it! Moreover, you get to invest in the company stock, which, we all know, is going places!!"

For the uninitiated, this may even be a real perk. If you have a dangerous spending habit (and yet somehow can refrain from spending the money unless it is deposited to your checking account) you may benefit from the automatic paycheck deduction/transfer into a form of investment.

But yeah, like others said, ESPPs usually come with more incentive and without those incentives, I would not bother with the company stock.

Kalergie

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Re: Is my company's stock purchase plan worth it?
« Reply #13 on: July 14, 2015, 03:18:13 PM »
Are you sure you are not getting a discount (usually 10-15%)? Maybe worth checking. I sell my company stocks immediately after they are vested and buy into my actual portfolio. I will not take the risk of having my investment and my salary in the same company.

the_fella

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Re: Is my company's stock purchase plan worth it?
« Reply #14 on: July 15, 2015, 01:05:38 PM »
Are you sure you are not getting a discount (usually 10-15%)? Maybe worth checking. I sell my company stocks immediately after they are vested and buy into my actual portfolio. I will not take the risk of having my investment and my salary in the same company.

I checked. No discount.

Kalergie

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Re: Is my company's stock purchase plan worth it?
« Reply #15 on: July 15, 2015, 01:52:33 PM »
Hm...that's a shame. In that case I'd pass.

milesdividendmd

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Re: Is my company's stock purchase plan worth it?
« Reply #16 on: July 15, 2015, 04:28:28 PM »
Worse than bad.  The last company you should invest in is your own, It concentrates your own idiosyncratic risk.

powersuitrecall

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Re: Is my company's stock purchase plan worth it?
« Reply #17 on: July 16, 2015, 11:04:33 AM »
Worse than bad.  The last company you should invest in is your own, It concentrates your own idiosyncratic risk.

Agreed.  Way too much risk.  By virtue of being employed by this company, there is enough of your financial life already invested.

I learned this the hard way in the tech crash.  I lost my job (without severance) at the same time our stock tanked.  Not cool.

the_fella

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Re: Is my company's stock purchase plan worth it?
« Reply #18 on: July 16, 2015, 02:34:15 PM »
Worse than bad.  The last company you should invest in is your own, It concentrates your own idiosyncratic risk.

Agreed.  Way too much risk.  By virtue of being employed by this company, there is enough of your financial life already invested.

I learned this the hard way in the tech crash.  I lost my job (without severance) at the same time our stock tanked.  Not cool.

I do get your point, but this is a multibillion dollar company that has existed since the 19th century.

Davids

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Re: Is my company's stock purchase plan worth it?
« Reply #19 on: July 16, 2015, 02:49:10 PM »
There are only 2 reasons why anyone should ever own stock in the company they work for.

1) The company offers an ESPP with a 15% discount (if it is 10% it might still be worth it but anything less is not)
2) If your compensation package also includes Stock Grants or Options.

NEVER USE YOUR 401K TO PURCHASE COMPANY STOCK!!!


powersuitrecall

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Re: Is my company's stock purchase plan worth it?
« Reply #20 on: July 16, 2015, 04:04:06 PM »
Worse than bad.  The last company you should invest in is your own, It concentrates your own idiosyncratic risk.

Agreed.  Way too much risk.  By virtue of being employed by this company, there is enough of your financial life already invested.

I learned this the hard way in the tech crash.  I lost my job (without severance) at the same time our stock tanked.  Not cool.

I do get your point, but this is a multibillion dollar company that has existed since the 19th century.

So was my company :)

milesdividendmd

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Is my company's stock purchase plan worth it?
« Reply #21 on: July 16, 2015, 04:39:46 PM »
Worse than bad.  The last company you should invest in is your own, It concentrates your own idiosyncratic risk.

Agreed.  Way too much risk.  By virtue of being employed by this company, there is enough of your financial life already invested.

I learned this the hard way in the tech crash.  I lost my job (without severance) at the same time our stock tanked.  Not cool.

I do get your point, but this is a multibillion dollar company that has existed since the 19th century.

So was my company :)


Exactly

Regardless of the perceived financial invincibility of your company, idiosyncratic risk is the type of risk that pays the investor nothing. It's by definition all risk and no reward, so why take it on?