On Apr 8, 10:53 am, Bill Woessner <woess...@[EMAIL PROTECTED]
> wrote:
> Hi all. I'm seeking advice on whether or not to participate in my new
> employer's stock purchase plan. I haven't started the job yet so I
> don't have all of the details. But the benefits crib sheet they gave
> me spelled it out like this: You can contribute up to 10% of your
> salary toward the plan and you purchase the stock at a 15% discount.
> It does not mention how long you are required to hold the stock.
>
> On the surface, this seems like a simple way to get a 1.5% (= 10% *
> 15%) bonus. Of course, that assumes the stock stays level.
> Normally, I'm adverse to holding that much stock of a single company.
> So I'd want to sell it ASAP. But there is the incentive to hold on to
> it for a year to get long-term capital gains treatment.
>
> So basically, I'd just like to hear what other people have to say
> about such programs. If you have personal experience, so much the
> better!
>
> Thanks in advance,
> Bill
My opinion is that as you have termed your strategy, you are taking on
a lot of risk for a 1.5% annual gain.
I would hold the stock longer in hopes of getting upside appreciation
and improving the return. I would then counter this by diversifying
other ****tions of ****tfolio.
Is the new employer a large cap, mid cap or small cap?
If a large cap, my suggestion is to reduce overall large cap exposure
in ****tfolio. If normal allocation to large cap is 30%, maybe reduce
to 25% and hold company stock as other 5%. Most large caps move in
tandem with each other, there is little additional risk taken relative
to what you do now.
If new employer is a mid cap or small cap this is much harder. You
are effectively overweighting a sector within that asset class. My
suggestion would be to add a bond position equal to position in
company stock. I would not reduce mid or small cap exposure (in
mutual funds) because of where my company stock trades.
I would plan to hold for some time. As Ernie pointed out, company
stock can be highly profitable if you hold it long enough (and company
is a good company).
I work for a mega cap (we are world's 12 largest employer). Much of
our revenue comes from overseas. I hold 4% of my 401k in company
stock and dropped my large cap by 4% and foreign holdings by 4%. and
added a 4% bond position. IMO this covers my asset allocation
enough. I want to take this risk to get higher returns-maybe 20% when
rest of ****tfolio only gets 8% type thing.
I think if you have enough assets (already invested), taking a risk
with a small position makes sense.
If whole ****tfolio was 200k and gained 8% you made $16,000.
If company stock was 20k (10% of above) and gained 20% you made
$4000. Took 10% more risk and received 25% of the overall gain. IMO
this is much easier to stomach with a small position in company stock.
Make sure you are rewarded for the risks you take.
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