Should you invest in company stock?

should you invest in company stock

I often get asked if you should invest in company stock and my answer is that it depends.

First, let’s do all the different scenarios.  You’ll probably have two ways to invest in company stock.  The first one is through an employee stock purchase plan, often called an ESPP or an SPP.

Employee Stock Purchase Plans

Whether or not to invest in your ESPP or SPP depends on one thing – what’s the discount? If none, then don’t bother.  You could always buy those shares from an online discount broker anyways.

However, I’ve never worked at a place that doesn’t offer a discount.  It’s generally 15%.  If you’re getting a 15% discount, then you’re a fool not to take it.  At worst, you can immediately unload whatever you bought as soon as you’re given those shares. 

And tell me with a straight face, do you know any investment that guarantees 15% in a six month period? Honestly, I shoot for 15% or more yearly with my stock investments, but none of them are guaranteed.  Your employee stock purchase plan is.

Stock grants

The other common method to invest in your company stock is through stock grants.  Before you join a company, you’re often seduced with a single stock option grant.  These are often referred to as options or stock options.

These can be great, depending on what the company does.  I’ve been in two companies so far where I’ve made at least six figures via stock grants.  You’re going to live a long time.  Chances are, so will you if you know how to pick companies.

You’ll be given stock grants regardless of if they’re pre-IPO or they’ve already gone public.  Of course, you’ll get more pre-IPO.  However, those are a gamble as you may or may not make anything.  If the company is already public, you’ll get a lot less stocks.  But, you can research the numbers and see if the company is good or not.  I’m not going to go over what is a good company in this article since that alone will take at least 10,000 words.

For these, I don’t want to give too much advice because in this situation, I let my accountant handle this.  Tax laws suck, and frankly, they piss me off.  They’re way too confusing for the average person.  That’s why my accountant makes the big bucks.  He deserves every penny he gets.  I let him have the headache as I’d much rather spend my free time painting.

That said, be very careful.  You’ll need to know about exercising your stock options vs selling them outright.  If you do the latter, you’ll take a big tax hit immediately.  However, it’s done.  You get your money after taxes.

If you exercise, there’s a pretty good chance you can get hit with AMTs (alternative minimum taxes, which are the work of the Devil).  You can literally owe six figures in taxes and lose money with AMTs.  I sincerely hope they changed the laws recently.  I’m not keeping my hopes up since once a tax is created, it’s rarely repealed.  Once again, talk to an accountant.  Let him have the headache.

So should you invest in company stock?

It’s funny.  A lot of self-help blogs brag endlessly about how they make all this money working on their own.  You know what? You still can make a million working for corporations.  It’s getting harder every year.  But you still can if you know how to pick the right companies.

Develop such strong skill sets that you’re employable.  Then, take those stocks.  Be greedy.  If you can make more elsewhere, do it.  Very few companies have loyalty to you.  Loyalty should be a two-way street, but nowadays, it’s not.

And if you’re wondering, my short answer is yes.  Get your ESPP, keep some of it, and sell the rest.  Also sell your pre-IPO stock constantly.  A good rule of thumb is at IPO, sell half of it immediately, then sell the rest bit by bit yearly. 

Don’t worry, if you’re good at what you do, you’ll get more.  A lot of people don’t know this.  They think that at hire is all you get.  No, the good employees will get more.  That’s why it’s a good idea to constantly sell some.  I’ve worked at enough companies that have gone under to know you need to unload.  You’re a fool if you watch six figures turn into nothing.

Diversification?

I sincerely hope that not all your money is in company stock.  Outside of your stock grant and your stock purchase plan, I think it’s a horrible idea to invest in company stock.  You got all your eggs in one basket.  If it turns out really well, you got lucky.

Now if you own the company, why are you even reading this article? You should be reading my blog for my watercolor stuff, not my money advice.  I should be paying you for money advice.

But if you don’t have a million yet, then you need to listen to what I’m saying.  Company stock made me a lot of money over my career.  To the point that I could half-retire right now.  But, I want to retire richer (with an eight figure net worth, not a seven figure).  That’s why I still work.

You should diversify at least somewhat.  I think a diversified portfolio is overrated.  I rotate between cash, indexes, and individual stocks depending on what the market is doing.  I’ll ride a bull market and put stop losses on everything.  During a bear market, I’m waiting to time somewhere close to the bottom, then buying like a madman.

I personally love both bull markets and bear markets.  What I hate is when the market doesn’t move.  I love volatility.  But that’s just me.  Most people can’t stomach that.

But back to diversification, yes, somewhat.  Don’t have all your eggs in one basket.  But don’t be so diversified that if one segment shoots up, you only got 5% of your stock wealth there because you’re so fucking diversified.  Make sense? I hope so.

About

Roman is an artist, composer, writer, and travel junkie.

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