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Question about ESOP program through work
Posted on 4/13/13 at 5:28 am
Posted on 4/13/13 at 5:28 am
I am putting away the max into my company's ESOP program as an emergency fund (10% PDCO). I buy it at a 15% discount and can cash it out or trade it anytime through etrade. The stock has been doing ok recently as it has a low of $30 and a high of $38 (currently $37).
Should I just leave it there, cash it and let it sit or trade into another stock?
I have Exxon, AT&T, pharmaceuticals, big tobacco etc in my other portfolios already. My first thought is to trade out and go with an unrelated stock to my portfolio.
What does the money board think of this situation?
Should I just leave it there, cash it and let it sit or trade into another stock?
I have Exxon, AT&T, pharmaceuticals, big tobacco etc in my other portfolios already. My first thought is to trade out and go with an unrelated stock to my portfolio.
What does the money board think of this situation?
3
Posted on 4/13/13 at 6:33 am to mooseknuckle
quote:
Should I just leave it there, cash it and let it sit or trade into another stock?
You have a number of options. You can churn it right away into something else at a 15% premium (if I understand your situation), especially if the stock is already high right now.
You can buy and hold for a while if it drops below 35 or so (because you're buying it at about 30, then), then churn it again when it tops 36 or so. Your only loss in this case is if you hold the stock and it goes down 15%.
Churn it into a stock with a dividend reinvestment plan could work or just fund an indexed mutual fund with it an think of it as your employer kicking in 15% at the front end?
I would talk to your tax guy about capital gains, though. That could eat some of your profits. You may have to include some tax planning for all of this.
Posted on 4/13/13 at 6:52 am to Ace Midnight
Thanks. I have had bad experiences with almost every mutual fund I have tried in the past. Can't remember the exact names but the advice came from several different advisors. I'm currently with Edward jones (advice from a friend with big cash who said use guys you have to pay) and I must say I'm very happy with individual stocks. Any advice on particular stocks? I just started doing this and only have a few grand put away.
I'm thinking when I get enough in the plan I can diversify into several options. Right now it may be best to focus on one stock.
I'm thinking when I get enough in the plan I can diversify into several options. Right now it may be best to focus on one stock.
Posted on 4/13/13 at 9:03 am to mooseknuckle
I have a similar plan and about every year or so I sell whatever is subject to long-term capital gains and put it in my Roth. You can always pull out from your Roth whatever you originally put in with no cost or penalty, so it's a fine emergency fund and you can boost your Roth contribution if you aren't maxing it already.
So far as funds go, why not just go with a target retirement fund? They are usually inexpensive.
So far as funds go, why not just go with a target retirement fund? They are usually inexpensive.
Posted on 4/13/13 at 9:05 am to mooseknuckle
Looks like a great deal. I would continue to max out but would make sure it is in no more than 10% of my total holdings maybe less depending on how the company is doing.
Posted on 4/13/13 at 4:28 pm to mooseknuckle
quote:
I'm thinking when I get enough in the plan I can diversify into several options. Right now it may be best to focus on one stock.
I just think the average person is better in an indexed mutual fund than individual stocks. You're buying the entire market, if you buy an S&P 500 indexed fund, for example, and spreading the risk out to, effectively, everyone. It takes less research and you're also not one bad market report/earnings report or lawsuit away from losing your shirt.
However, a single stock (at least initially, but you can diversify as your investment amount grows, or the circumstances change) strategy that can work is a good dividend reinvestment plan (DRP, as it is sometimes called). That is great for building both wealth and an income stream, should you need it. I would take to your EJ guy about DRP options.
This post was edited on 4/13/13 at 4:31 pm
Posted on 4/14/13 at 7:54 am to Ace Midnight
I had no idea you could pull funds from a Roth with no penalty. Does that hold true if I'm maxed out then adding additional ESOP funds?
I will definitely check with my EJ guy about DRP
I will definitely check with my EJ guy about DRP
Posted on 4/14/13 at 4:49 pm to mooseknuckle
Seems we may work for the same company. The ESOP has to be company stock. the 401 k is contributed at a %you decide. I try to diversify and get my exposure in company stock to only be the ESOP. The Etrade stuff I will trade out to other stocks when able. And I max e 401k every year no matter what. You don't want all of your nuts in the same basket.
Posted on 4/14/13 at 7:52 pm to Ace Midnight
quote:
I just think the average person is better in an indexed mutual fund than individual stocks. You're buying the entire market, if you buy an S&P 500 indexed fund, for example, and spreading the risk out to, effectively, everyone. It takes less research and you're also not one bad market report/earnings report or lawsuit away from losing your shirt.
This is exactly why I contribute to the ESOP (to get the free money) and sell periodically when it moves from short to long-term cap gains. Reinvest in an index for the long haul.
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