Buying stock in the company you work for can be an opportunity to participate in its success, but there are a few things to consider first. The potential discount, your interest in the company as an investment, and the risk compared to the broader market can all factor into the decision.
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AJ, we have a number of clients that want to know if they should buy and perhaps hold stock in the company they work for. What is our guidance on this right now?
Yeah, it’s a good question. You’ll see this commonly as an example when you go to enroll in your 401(k). If you work for a large publicly traded company, it’s not uncommon for the employer to have or offer an ESPP or an employer stock purchase plan.
Before doing that, I think it’s worth asking, if I didn’t work here, would I still be interested in investing in this company? I think you have to check that box.
The second thing that I would ask is, am I getting a discount buying these shares? It’s not uncommon for employee stock purchase plans to have a 5% or 15% discount for employees to purchase relative to the market price.
And then the third thing that I would ask, as just a general portfolio management question, if I’m going to load up on this stock through payroll, is the risk-reward, and that includes the embedded gain from the discount, is that risk-reward more attractive in this one stock than if I just bought the market in general, the S&P 500 as an example?
So, if our clients can check a couple of these boxes, we can help them participate in the success of their company.
Yeah, exactly.