[EU] Buying company shares at my job - worth it?
[EU] Buying company shares at my job - worth it?
As the title mentions, the company I work at is offering free shares when buying back some of the company's shares, as well as a discount, depending on the amount of shares purchased.
Could any of you advise me if it would be a good idea to start investing into this? If not, could anyone suggest any other investment avenues to a complete n00b like me?
Thanks in advance!
It makes a huge difference how big the company is, and how easy it is to sell shares. (I am also making the fundamental assumption the company is public, if it is not then there is no guarantee at all you can ever sell the shares). If your company is traded on a major exchange, and there are lots of shares traded per day, the it is likely you will be able to sell them when you need to at a competitive price (subject to any restrictions they place on you as an employee to sell).
Large publically traded companies in the US call this an "Employee Stock Purchase Plan" and if this is offered as part of an ESPP, then the company is likely large enough to count.
Then, there is a separate matter of whether the company is a good investment at all. And even if it is, you may not want to invest in your employer at all, because your salary is already tied into their performance, and you may not want to tie your investment strategy in to the same company. However, there is nothing preventing you from selling ESPP shares as soon as your company lets you do it after purchase, and if you do that you can get an immediate guaranteed return, with very little risk. You will have to pay taxes on your profit, but not the money you put in to buy shares.
It makes your taxes a little more complicated, but not overly so, and you may clear enough to pay an accountant to do your taxes anyway.
Thanks for the answer~
The company is pretty large and well-known around the world. And this was labelled as an ESPP. The problem is that I can't exactly discern if this is a worthy investment, considering my inexperience. Could you let me know what should I look out for?
If you're purchasing shares at a discount that you can immediately sell at full price, that is effectively free money.
Whether you want to hold those shares over a longer term is more complicated. 1) do you think the company is going to be more successful than its competitors? 2) do you think the industry as a whole is healthy and growing? 3) are you comfortable having savings and job dependent on the same organization? (i.e.: if the company has a big loss, you may lose your job and the value of your stock/savings will go down at the same time)
If you're not comfortable answering the first two questions, then you may want to consider buying the discounted shares, selling them immediately, and putting the proceeds into some kind of diversified index fund. Index funds are popular because they diversify around the losses (and successes) of individual companies and individual industries, and bank on the general phenomenon of long-term economic growth. i.e.: population increase and new products.
ESPPs are a great way for the company to get employees to care about share price and get emotionally invested in the success of the company. They're a great way for companies to provide additional compensation to employees (and the executives who put the plans in place) without having to call it salary, which often has tax benefits for both the company and the employee.
You would be evaluating the company just like any other individual stock, which means looking at its revenue, profit, debt, cash on hand, and other financial metrics. As well as its business model, and whether that business has any growth potential. But at the end of the day, the price is driven purely by how much other people want the stock in rhe market. I don't mean to discourage you from Learning about it if it interests you, but there are a ton of financial planners and analysts who make this their career, and are still wrong often.
If I were in your shoes, I would put in as much as you think you can afford over the term of the ESPP buy-in, and then simply plan to sell them all once as soon as you can. They will take all that money, and buy shares with it at the discounted price, and then when they hit your account, they will be "worth" the current price. The price you sell them at will differ a small amount from the price they were issued at, because the market will have moved in that time. The difference between the discounted price and the current price will show up on your W2 as income, and you will have to pay tax on that, which may eat into your refund little bit. But not only is that difference free money for you (after taxes), but you get back all of what you paid in, making it a form of forced saving. And it may be enough of a bundle of cash that if you still wanted to invest you could then buy an index fund which will still go up and down with the market but has less risk if any individual company underperforms.
Edit: just realized you said you were in the EU, I think all the ESPP rules are similar, but possibly in Metric instead. :)
I got the opportunity once, didn't do it because from a risk perspective working at that company and holding their shares was too much asset centralisation
If you can't determine whether this is a good idea, then it's not. If you knew how to assess the value of the company against share price and total shares, the math would tell you whether it's worthwhile.
For a n00b don't start with investing in individual companies, just start with something that mitigates most of the risk. Presuming you're young, a "high risk" mutual fund would probably be an appropriate start. If your risk tolerance is low, a growth fund is probably what you want.
If you have cash to burn, go ahead and YOLO in the stock market, but please get more information than what you'd find on WSB. Meme stock loss porn is real.
Thanks for the advice.
I'm not particularly young, but I'm now at one point in my life where I am on the upturn financially, and I was thinking of making my money do more for me.
WSB = ?
Any tips on going with a growth fund? What should I look into?
I regret not doing it when I had the opportunity. It's kind of like a company match, in that they're basically giving you free money if you contribute.
That said, there is still risk associated with any investment.
Besides the issue of risk, there can be practical issues due to you not being able to choose the service with which to buy shares. At my former employer, people had a lot of issues when trying to sell their shares. The broker service that was used by my employer wasn't particularly quick to react and people often waited weeks or months before their shares were actually sold.
Take the free ones. Ignore the discounted ones, don't buy them.
There is too much concentration in your livelihood when you invest in your employer. For example, and I know too many examples of this, if your employer starts doing badly, you can not only lose your job, but they might move out of town leaving your home in a state where you may need to sell it in a depressed market. Often the shares you would have invested in the company are worth too little to sell. Your assets, your job, your home, all take a hit at the same crazy time. Not worth it.
Instead, invest in broad-market index funds. Go to Bogleheads where they discuss this and ask there. If you like momentum, arguably the greatest investor that has ever lived, Warren Buffett recommends a split between 90% SPY or IVV (S&P500) and 10% cash. The S&P500 is something like a momentum fund of the top winners of the US economy, and constantly changing.
Your employer is only trying to tie you down and have real skin in the game so that you'll work harder. Ignore the tendency.
Best of luck.
Just to be clear, this is ESPP type for a publicly traded company? What are the EU rules for holding?
For me, at Fortune 500 company it's been great. Not super sexy growth, but most of my lots are stable. And even lots that have lost value have not really fallen below the discount price. I think the challenge for me was the combo if ESPP as well as Stock Option and RSU's quickly led to a place where I was/am overexposed to the company for my non retirement investment. You need to be disciplined to annually, or quarterly, selling shares and reinvesting to diversify.
On the downside, if shit hits the fan with your company, it sucks. You could lose your job and lot of value in stock if you have so much. That said, if you believe in the company and already have a somewhat diverse portfolio of index funds or other holdings, it's probably a no brainer to opt in.