Should I purchase stock in the company I work for via payroll deduction if they're offering it at a 15% discount? Only reason I ask is because I'm already contributing 10% (company matches 6%) to my 401K. I'd like to have a little money left in the bank after all my deductions, with a wedding/honeymoon coming up. If I'm already contributing 10% to my 401K, what would be a good percentage to contribute to company stock?
How long do you have to hold it in company stock? When can you transfer it to other funds? I wouldn't put more than 10% in one company. Many experts recommend no more than 15-20% in company stock.
I wouldn't ever purchase single company stock..Think ENRON. Ideally, you want to spend 15% of your income to retirement. You're already at 10%, so I'd put another 5% away in a Growth Stock Mutual Fund. Look at various funds & find one thats been around for at least 10yrs. Check out their track records. You'll find some that have a track record of 10% or more returns over the long haul. Put your money in those. Mutual Funds are for Long-term investment, so if your gonna need your money back in 5yrs, find something else. Hope your saving for your wedding & honeymoon now. Congrats by the way. If you want to develop a long-term plan to personal finance, check out. The Total Money Makeover..by Dave Ramsey. It outlines everything from getting out of debt, to the types of insurance to buy and the best ways to maximize your retirement and kids college funds..etc. give'em hell bearcats
1) You should always contribute THE MAXIMUM ALLOWED to your 401k, which is usually 15% or more. You should never contribute less than that unless you have a family emergency that requires you to stop doing so for a short while. 2) Should you buy company stock (at a discount)? It's impossible to answer that without knowing what company. However, I can provide some helpful info for you to make your own decision: a) Go to Yahoo finance and lookup a stock (like Microsoft - MSFT). On the left nav column, click on the link labeled "Insider Transactions". This link shows when each of the company's senior management buys stock, sells stock, or exercises options and at what prices. It might help you get an idea of what they consider a good price to buy, or a good price to sell (note: then again, if they just got sued by someone, they might be dumping stock just to get some cash. Be careful). b) If you're getting it at a discount, you might want to try buying a little. But only buy with money that you are able to lose. It's like going to Vegas. If you can afford to lose the money, go ahead. If you can't afford to lose it, it might not be a good idea.
In my company, they used to let us buy company stock at a discount and then we were allowed to IMMEDIATELY sell it at market price. If he can do that, I would suggest buying the maximum allowed.
The employee stock purchase plan usually allow you to sell right away, so if you are worried about not enough cash or too much money in one place, just flip it as soon as you get it. So yeah, buy the maximum allowed shares, that's 15% profit right away.
Hold it a year and a day. Then sell it and get better tax treatment. If it were me, I would only buy big iff I liked the stock a lot. If you have mixed feelings, go small (hold a year and a day).
In my company, we buy in every 6 months, and you can sell right away. We get a 15% discount off of the lower of the opening period price, or the closing period price. Say on Jan 1, the stock closes @ $50/share. If on June 30, it closes @ $60/share, I get my shares @ $42.50. If it closes at $25 on June 30, I get my shares @ $21.25. If you sell right away, you make at least 15%.
Well.... it's a large company that has a big tower (with a sign showing the company logo on top) on Allen Parkway... and they advertise during Rocket games a lot... Does that help? I'm still trying to decipher the prospectus to figure out what the policy on selling it is...
Stock purchases are usually NOT through a 401K, so if you usually have to pay taxes. That being said, even paying taxes, if you are totally risk adverse, just pay taxes on the immediate 15% discount you get if you sell immediately. Pretty much a guaranteed 15% return is pretty darn good, about 3X a CD return, even if you pay taxes...so I'd say maximize it after your 401K contributions if you can.
Always do the max on the stock ownership plan. Drop your 401K contribution to just the 6% match if necessary. If your company plan is the same as ours, you get a 15% return on a 3 month's investment (the contributions are evenly spaced out over 6 months). That would be equivalent to a mutual fund yielding 75% annual return, which... doesn't exist. Trust me on this. Even if your stock plan doesn't pay out every 6 months, and only pays out once a year, it's still a 32% annual return. (15% on a 6months investment). Unless you're making well over $100K it is highly unlikely you'll realize the same benefits contributing to your 401K. But then again, if you are making over 100K, then you should be maxing both your stock plan and 401K anyway. So there you go. Free financial advice. And you didn't even have to pay a CFA for it!
Unless your company really sucks and has a bleak future, it never hurts to get some equity in the company that you are working for. Yes, there are some major risks involved with holding stock in individual companies, but there is a major potential upside as well. I wouldn't put all of your money into the company stock because you should protect yourself against major price adjustments through diversification, but I also wouldn't completely avoid it as well. Another consideration should be how the stock has performed and is expected to perform compared to various funds that your company will offer as an alternative investment. Personally, I would put a lot of money into international and emerging market funds because we are just scratching the surface with the growth potential in those markets but that is just me. Whatever you do, the main point should be to diversify into multiple areas to hedge any potential losses.
At minimum, contribute to your 401k up to match. After that, look at your other options. With your companies 401k, unless there is a pcra/segregated account/pooled provision, you are limited to the funds which are provided. Your available plan funds might SUCK. Go with an IRA with another vendor, or just go directly into the market. Sure, your contributions don't have a tax advantage, but your possible investments are unlimited, and your money is accessible. Make sure to check your plan description with regard to your esop. My company requires one to hold the stocks for a year before selling.
