I work for a company that offers the same option in our 401k. I always thought that the reason they offer this option is the company wanting its employees to invest in its stock but you cannot invest in individual stocks in a 401k.
Oh, this makes a lot of sense. I never really thought about that lack of stocks in 401k plans, and now I feel a little stupid. This is what I was looking for, thanks!
...As others have said, betting even part of your retirement on your current employer's stock price is a poor idea for a variety of reasons.
Nope, I'm not touching it. Thanks everyone for your help! I really appreciate it.
FWIW: I did a little math trying to figure out the benefit of this kind of fund, comparing it to investing an equal amount in plain old company stock.
Assumptions:
-Investment is $1k every year for 30 years and starting stock price is $100
-Both investments yield 7% growth and 4% dividend payment
-Stock fund is subject to 0.05% fee on all holdings
-Inflation eats 2% of 4% of stock fund kept in cash every year
-Actual stock purchases cost $7 a share and are never sold, no yearly investment fees
-Actual stock dividends subject to 15% tax
If you're not paying tax on the dividends in the 401k, you could come out 10% ahead in this example. So, at least my coworker investing all in it has that going for him *shrugs* :/