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Should I diversify from ESOP?
Posted on 12/8/24 at 9:12 pm
Posted on 12/8/24 at 9:12 pm
Currently work for an ESOP company that is very healthy in terms of performance (very low debt and revenue growth year over year). Great company and the ESOP portion of the retirement account is a huge selling point. Current ESOP value is in the $750k range (along with a 401k of around $250k), and the stock valuation has grown exponentially over the last few years (not uncommon to see price per share jump 30% or more year to year, don’t remember the last share reduction). My question is: I’m considering a career change that would increase take home pay in the neighborhood of 70% (with a relatively standard 401k program). But I’m having a hard time gauging whether that outweighs the additional retirement benefit of my current scenario. I understand that that’s a huge investment in the performance of one company, but we are leveraged in a way that it’s hard to imagine us ever going belly-up. Would it be wise to move on and diversify those ESOP payouts into a more broad portfolio? I’m a novice at all of this so any insight is appreciated.
10
Posted on 12/8/24 at 9:17 pm to omarlittle
Look at buying protective puts.
I’m sure advisors may say “no more than X% of you money should be in company stock.”
I’m sure advisors may say “no more than X% of you money should be in company stock.”
Posted on 12/8/24 at 9:36 pm to omarlittle
quote:So, are you forced to liquidate if you change to another company?
omarlittle
Posted on 12/8/24 at 9:38 pm to Big Scrub TX
The ESOP value is paid back to you in installments over a period of time (5 years I believe without having the plan in front of me).
Posted on 12/9/24 at 8:09 am to omarlittle
You should never have 75% of your retirement in a single investment.
Ask Enron.
Ask Enron.
Posted on 12/9/24 at 8:35 am to WM88
quote:
Ask Enron.
Or WorldCom…. Knew a few who went from paper millionaires to fricking broke overnight.
Posted on 12/9/24 at 9:29 am to omarlittle
Short answer, you should diversify.
Long answer, if you’re going to make 70% more with a new job, couldn’t you just continue to purchase your current company’s stock while working for another company? The 70% pay increase has to be more than your gifted shares from the ESOP, right?
Long answer, if you’re going to make 70% more with a new job, couldn’t you just continue to purchase your current company’s stock while working for another company? The 70% pay increase has to be more than your gifted shares from the ESOP, right?
Posted on 12/9/24 at 10:44 am to Tifway419
quote:
Long answer, if you’re going to make 70% more with a new job, couldn’t you just continue to purchase your current company’s stock while working for another company? The 70% pay increase has to be more than your gifted shares from the ESOP, right?
It's not publicly traded, so I don't think I can continue to buy in. Looks like they pay in installments over a 5 year time period, but the payments do not have to start until after 5 years of termination. Haven't talked to anyone's who's left the company to know when it actually starts.
I understand the want to diversify, it's just that that retirement vehicle is growing at a rapid rate. Since covid, it's been around a 10% (of eligible salary) yearly contribution, and the stock price is going up on average around 35% per year. I get that there's no liquidity in it, and I could sure use the increased real-time compensation, I just don't want to miss out on exponential (future) gains. The company is in good standing, so I know it's not reasonable to expect continued returns on that level, I believe it will continue to trend upward.
Posted on 12/9/24 at 11:02 am to omarlittle
little omar:
put it all in CELSIUS!
put it all in CELSIUS!
Posted on 12/9/24 at 11:30 am to omarlittle
I think you first need to get educated on your companies ESOP plan.
If you work for the big green machine you are way off on how the ESOP works.
If you work for the big green machine you are way off on how the ESOP works.
Posted on 12/9/24 at 12:14 pm to zuluboudreaux
quote:
I think you first need to get educated on your companies ESOP plan.
If you work for the big green machine you are way off on how the ESOP works.
I don't know what the big green machine is, so it's definitely not that.
Posted on 12/9/24 at 1:22 pm to omarlittle
quote:
Since covid, it's been around a 10% (of eligible salary) yearly contribution, and the stock price is going up on average around 35% per year.
Ok, what if you took the new job and invested all 70% of your pay increase into the S&P and assuming 10% return from the S&P.
How would your accounts compare year over year. You’d have to run the numbers, but assuming 35% return for the next 5-10 years is very aggressive.
Posted on 12/10/24 at 12:03 am to omarlittle
What is the big green machine ? AA?
Posted on 12/10/24 at 5:49 am to omarlittle
Lucent, an AT&T spinoff, had employees in Shreveport who were killing it on company stock ... until they weren't.
"In only six years its stock price rose from $7.56 per share to a high of $84 after multiple stock splits, and then crashed to a 2002 low of 56 cents."
I remember a company rep on TV saying they begged employees to diversify their 401k, but many employees wanted to stick with the company stock because of the huge gains year after year.
"In only six years its stock price rose from $7.56 per share to a high of $84 after multiple stock splits, and then crashed to a 2002 low of 56 cents."
I remember a company rep on TV saying they begged employees to diversify their 401k, but many employees wanted to stick with the company stock because of the huge gains year after year.
Posted on 12/10/24 at 7:54 am to omarlittle
quote:
It's not publicly traded
The company is worth whatever they (majority stock owner) want it to be worth. In your example of paying you out over 5 years, and they don't have to start until 5 years from now, they could decide that the shares are worth $0.00001/share when its time to pay you. No way in hell I'm investing money in a private company where I have no control over valuation or decision making. Even worse if you no longer work for the company and have 0 insight into how the business is doing. Roll that ESOP into 401K funds bf you leave then roll that old 401 into your new 401.
Posted on 12/10/24 at 8:31 am to omarlittle
If these guys at companies like Nvidia are cashing out to diversify, do you think you should?
Posted on 12/10/24 at 8:54 am to geauxnc0308
quote:
Roll that ESOP into 401K funds bf you leave then roll that old 401 into your new 401.
We're not allowed to diversify (in the sense of having access to the balance and moving the funds to other vehicles) until age 55. Employees are not investing out of pocket, the company is providing the asset at no expense. It's an additional retirement account that supplements the 401k. The only way to "diversify" in this sense is to leave the company.
Posted on 12/11/24 at 12:05 am to geauxnc0308
quote:
The company is worth whatever they (majority stock owner) want it to be worth. In your example of paying you out over 5 years, and they don't have to start until 5 years from now, they could decide that the shares are worth $0.00001/share when its time to pay you.
Well that’s not true.
ESOP is a trust with a trustee. Trustee has to get an annual valuation of the company done by a qualified appraiser. That appraisal is used for everybody not just one employee.
If it’s a big ESOP, then they’re definitely not going to tank the value because of one employee.
You’re likely also getting paid for the share value at date of departure from the company not 5 years down the road. They just have 5 years to come up with the cash.
Now can there be sketchy situations like you said? Yes. But it’s not the norm.
This post was edited on 12/11/24 at 12:07 am
Posted on 12/11/24 at 10:07 am to omarlittle
quote:
The ESOP value is paid back to you in installments over a period of time (5 years I believe without having the plan in front of me).
I first started with a small company that had no 401k, only an ESOP. I left the company after ten years and started my withdrawals. Two years in they go bankrupt and I missed out on 3/5's of my money.
Posted on 12/11/24 at 1:33 pm to omarlittle
Depends on how close you are to retirement… our esop allowed employees over a certain age to take out funds and move to IRA.
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