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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
Invest cautiously in your company's stock plan. Take advantage of the discounted rate available to employees. Also do your research to make a wise investment. Why You Should Take Advantage of Employee Stock Programs By Britt Erica Tunick Companies are offering fewer and fewer perks these days, so it makes sense to jump on those that still exist especially when they are a no-brainer like employee stock purchase plans. Just don’t jump in blindly. In most cases when a publicly traded company offers employees the option of purchasing shares of its stock, it does so at a discount cost from the price available to the general public. Such discounts tend to be in the area of 15% below the market value of a company’s stock at the time an employee purchases shares. As with most company sponsored benefits, employees can indicate how much of their salary they would like to invest in a company’s stock whether a percentage of their overall salary, or a set amount. Most plans are capped at a percentage, such as 10% of an employee’s salary, or the $25,000 limit set by the Internal Revenue Service. Unlike 401(k) plans, money invested in employee stock plans is usually invested on an after-tax basis, but the discounted purchase price still makes these programs an attractive option. Of course, there are still things you need to keep in mind. Many employee stock plans attach a holding period, requiring that employees hold on to their stock and wait to sell it for a pre-determined number of months after their purchase. While there is no way to guarantee that a company’s stock is going to go up, or to foresee a drop in its price, employees should do a bit of homework on their employer before buying its stock. If a company’s shares have traditionally performed well and its business seems solid overall, purchasing shares is usually an attractive option. Still, some financial advisors remain leery of employees putting all of their eggs into one basket, cautioning that if a company were to suddenly go under there is the possibility of losing both your salary and the money you’ve invested in the company’s shares. With that thinking in mind, employees should be cautious not to invest any more money into a company’s plan than they could safely handle losing, or should be prepared to sell their shares as soon as they are able to assuming the market price for the stock is higher than the price they purchased them at. But if you’re the type of person who likes to buy and hold a stock for the long-run, that’s also not the worst approach. In many cases, even when you stop buying shares of your company, you have the option to roll any earnings accumulated by the shares you already own into purchasing new shares a win-win if both the number of shares you own and the stock price both manage to slowly rise. |
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