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Buying company stock at discount vs investing in the broader market.

Posted on 10/22/22 at 11:45 am
Posted by Thundercles
Mars
Member since Sep 2010
6133 posts
Posted on 10/22/22 at 11:45 am
Looking to up my investments in the coming month assuming the absolute worst is over. I work at a large company that is positioned to continue doing well in coming years and through our ESPP we can buy our stock at a 15% discount. I also intend to increase my buys of well balanced ETFs.

Do you think it's more sensible to max my buy of the company stock at a discount or push more into market funds? I have about 30-35 years before I retire.
Posted by notiger1997
Metairie
Member since May 2009
61330 posts
Posted on 10/22/22 at 12:12 pm to
quote:

Do you think it's more sensible to max my buy of the company stock at a discount or push more into market funds? I have about 30-35 years before I retire


That’s kind of just a judgement call for how you feel about your company and how much of your stock allocation is with your company.
If your plan is like mine, you not only get to buy at a 15% discount, your purchase price ends up being the lowest price over the previous year minus the 15%. It’s hard to justify not buying it, especially if you can sell it right away
Posted by Joshjrn
Baton Rouge
Member since Dec 2008
31732 posts
Posted on 10/22/22 at 12:16 pm to
How long do you have to hold before you can sell? To me, that makes all the difference.
Posted by PlanoPrivateer
Frisco, TX
Member since Jan 2004
2932 posts
Posted on 10/22/22 at 2:05 pm to
Take advantage of the discount. I wouldn't let my holding of company stock get to be more than 10 to 15 % of all of my investments.
Posted by makersmark1
earth
Member since Oct 2011
20460 posts
Posted on 10/22/22 at 3:18 pm to
If you get a lot of your net worth tied up in one stock, BUY puts to protect your downside.
Posted by thunderbird1100
GSU Eagles fan
Member since Oct 2007
71558 posts
Posted on 10/24/22 at 8:14 am to
No problem with buying company stock at a discount but placing the majority or a significant chunk of your money in 1 company is almost always a bad idea.

Most people would say dont do more than 10% in 1 specific company. So if you had $1k a month to invest, dont buy more than $100 of your company stock in that instance. Put at least $900 elsewhere in other funds/stocks.
This post was edited on 10/24/22 at 8:15 am
Posted by LSUtigerME
Walker, LA
Member since Oct 2012
3937 posts
Posted on 10/24/22 at 10:42 am to
quote:

How long do you have to hold before you can sell? To me, that makes all the difference.

This is the key.

We get a 15% discount on the stock, based on the lower of Jan. 1 or Dec 31 prices. Since it shows up Jan 7th-ish, it’s a guaranteed 15% gain with no obligation to hold. I sell mine immediately with no capital gains impact as well.

If you’re forced to hold for some period of time, I’d have to think hard about the performance of the company and how much of your financial future you want to tie up in the company (salary, benefits, and investments).
Posted by bayoumuscle21
St. George
Member since Jan 2012
5012 posts
Posted on 10/24/22 at 8:45 pm to
Kind of a different situation a bit but I have a older cousin that retired from Walmart. She worked there for 30 years and every week bought 50$ worth of stock. She wasn't good with money or really had any idea what would happen. Needless to say, she retired extremely well and we were all pretty stoked for her. Someone who lived paycheck to paycheck for 90% of her life is a millionaire without including her 401k.
Posted by slackster
Houston
Member since Mar 2009
91362 posts
Posted on 10/24/22 at 9:49 pm to
I just think the risk is too much for anymore than 3-5% of your portfolio. If the stock does poorly, your job security is also at risk. The added stress of that can lead to bad financial decisions.
Posted by Turf Taint
New Orleans
Member since Jun 2021
6010 posts
Posted on 10/24/22 at 10:00 pm to
Bird in hand = 15%
Two in bush better be >15%

Or, what I did for years was cash out of my company’s 15% discount on company stock and buy Amazon with 15% more cash than otherwise, given the stock discount.

Traded for Amazon that had far greater total shareholder return than company stock over the period I did this. Always felt a little guilty but that lasted about 7 seconds.
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