If you work for a larger company, then chances are in your favor that they offer an employee stock purchase plan.
Many people don’t participate in these programs for one reason or another, but we are going to discuss why you should consider this investment option, and some reasons why you shouldn’t fear it.
Fear of the Stock Market
Many people are afraid of the stock market, and it can be understandable, but if you are far away from retirement, then this should be less of a factor. Yes, we have seen some violent down turns in the market over the last decade, but these peaks and valleys will smooth out the further forward we move.
This doesn’t meant that you should be careless with your investments, but you should also not have an irrational fear of the market. People thought it was the end of the world when the market crashed in 1929, and here we are 82 years later, alive and well. I’ll tell you this right now, being in the red isn’t a permanent problem. If being in the red persistently was the norm, people wouldn’t invest in the market.
Stock Market Income
The truth of the matter is, people earn money in the stock market, during good and bad times. Whether it be capital gains or dividend income, shorts, calls or puts, people make money.
There are people who lose money too, but it’s either because they chose a bad stock, or they chose to realize the loss. Many people have lost money just because they got scared and followed the crowd.
There were people who sold Ford for $2.00 a share, and there were people who bought Ford at $2.00 a share. The sellers were scared, and the buyers saw opportunity. Now, Ford is trading for around $15.00 a share. Don’t let the economy trick you into believing that money can’t be made in this market.
Employee Stock Purchase Discount
Many companies offer a discount to their employees participating in the stock purchase plan. I get a 5% discount on the stock’s price. That means that each time I purchase stock in our plan, I immediately have a 5% gain. Of course, I’d be awfully short-sighted to just sell right away (if they allow that) but I don’t. I let it build up, and treat the 5% discount as an added bonus.
If you’ve got a bank offering a 5% yield right now, please leave us a comment. We’d love to see it. Until then, we’ll take the instant gain on our stock purchase plan.
No Brokerage Fees
There aren’t (or shouldn’t be) brokerage fees involved when purchasing stock directly from your company. Not only that, but dividend re-investments will be free as well. This can amount to significant savings over the course of just a few years. Try finding a broker that will let you buy your company’s stock without a fee. If you have one, leave a comment!
Employee Stock Purchase Plans and Trust
One other thing I find odd about not investing because you’re afraid of the state of the stock market or the stability of the company, is that the company is your employer. If you don’t believe this company can succeed in the stock market (especially with a free 5% bump), then why on Earth are you working for them?
If you can’t invest in the company’s stock with confidence, how can you trust them with your income and the future of your family? I’m not trying to call anyone a hypocrite or strong-arm you into quitting, but I just want to highlight this inconsistency. It might give some people something to think about. I wouldn’t work for a company that I couldn’t invest in. If you do, then I hope you have a good emergency savings account just in case.
Don’t Lean on Your 401K
Your 401K, or RRSP for our Canadian friends to the north, is a great investment vehicle, but it shouldn’t be the only vehicle to retirement and wealth building. You should employee all the tools at your disposal as well as possible. You won’t even notice the money is gone! This means that you should take advantage of your 401K, max your IRA contributions, buy a couple of CDs, and participate in your employee stock purchase program.
There are a lot of tools available to you to ensure that you can enjoy retirement, and you should use them! Of course, this information is contingent upon a lot of things, and only you can gauge if this is the right move for you, but I hope I’ve helped to clear some questions or concerns for you.
- Do you take advantage of the employee stock purchase plans?
- What features or advantages do you like about them?
- Have you ever been burnt by a stock purchase plan?