What do you think about owning stocks in the company you work for?
Owning stock in the company that employs you can be beneficial, but it also carries some risk. Let’s look at some of the potential benefits and drawbacks along with some things to consider.
- One of my main concerns when given the chance to buy stock in the company where I work is the question of: What happens if the company goes out of business? If the company suddenly folds are you going to be out of a job and the value of your stocks reduced to virtually nothing at the same time? What is your backup plan if your stocks are worthless and you’re unemployed at the same time? You don’t want to be holding all of your eggs in the same basket.
In situations where you have other stocks or a lot of savings this could be okay. You might also be in a company that seems incredibly healthy and has long-term market appeal. In which case these may not be concerns, but it’s worth considering what happens if the company suddenly shuts down or gets bought out. Can your finances survive such a scenario?
- In a similar vein to the first question: is the company you work for stable? How long have they been in business? Are they regularly spiking and dropping in their performance or are they steady? What does their stock price look like – has it slowly been growing for decades, slowly slumping for years, is it jumping up and down?
Ideally you want to invest in companies which have been around for decades and have shown gradual, steady growth. This is true of any company you invest in, but especially one where you work. If your company’s stock is rising and falling erratically (or just falling) then you probably don’t want to invest.
- Does the company offer any sort of buy-in matching options? Some companies will match your stock purchases or RRSP contributions to help you save for retirement. If your company will double your stock purchase (usually up to a certain per cent of your pay) then you could be basically doubling your investment.
Even if your company does match your stock buy-ins, effectively doubling your investment, still keep an eye on their stock price. If the company’s stock is down 50% for the year, even if they matched your stock purchases you’re still only breaking even.
- Do you believe in the company’s future? Stock charts and a company’s profile can tell you where they’ve been, but not where they are going. Is management on the ball? Does the company sell something you believe people will continue to need 30 years from now? When you look around the office, are you seeing people with good morale who feel secure in their jobs? These are signs of a company that is healthy and may be worth investing in.
On the flip side of the coin, does management seem inefficient and wasteful? Does the company sell some fad item or service that will probably disappear from consumer minds in ten years? When you look around the office do you see people tense and upset or worried about their jobs? These are all signs you should invest your money elsewhere and start job hunting.
- Are there trading restrictions? Often times, when you own stock in a company where you work, there are restrictions on when you can trade the stocks or sell them. As an example, I once worked at a company which offered stock purchase matching with the caveat that we could only sell their stock at certain times of the year. These times matched when there was a trading blackout for employees to avoid the risk/appearance of insider trading. In effect, anyone who took the buy-in matching deal was locked into owning the company stock indefinitely. This was not ideal for people looking to cash out in the near future.
These are some ideas to consider before you buy into your own company’s stock. Whether you do or not, keep in mind it is a good idea to have a diverse investment portfolio. Investing in your own place of work can be a good idea sometimes, but it’s always a good plan to be invested elsewhere too.
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