Is It Worth Holding Employer Stock?
By Kevin Estes
Understandable to Want to Keep It
I've always felt a connection to the work I do!
That's why I chose to work at T-Mobile, Amazon, and other companies. I felt real ownership.
There’s also some internal marketing:
Company restricted stock and stock purchase emails are super positive.
All-employee meetings often highlight the stock performance… when it’s risen.
However, there are three primary reasons holding employer stock might be less than ideal.
1. Already a Lot Riding on the Company
Employment is often the biggest driver of wealth creation.
Unfortunately, it only takes one person, someone’s supervisor, to decide they're not performing and they're out of a job.
Their position may also be eliminated if their team or department is laid off.
Public companies also have an outsized impact on the local economy. The value of real estate and small businesses depend on the health of these big local employers.
The Contagion Effect
Being overextended in a company stock could cause a quadruple whammy:
the stock price may fall,
the employee might lose their job,
their home value may drop, and
their spouse might also lose their job.
Unfortunately, I saw it happen.
A billion dollar retailer went out of business in a town of less than 10,000 people.
To say it impacted the local economy is putting it mildly.
I call this the Contagion Effect.
2. Employer Stock Has More Risk
Employer stock has greater risk than the overall market.
Single stock risk is the chance something will happen to one company:
a major competitor enters their space,
a key executive retires or performs poorly,
someone cooks the books, etc.
These risks are reduced by holding a bunch of smaller investments instead of one huge one.
That’s diversification!
But MY Company’s Different!
I've worked with coworkers and clients at many companies.
Employees always seem to think their company is special.
On average, they're average.
Someone can reasonably expect average returns for their company. An investment with an average return and above average risk is a poor investment.
3. Employees Are Already Rewarded
Finally, employees are often rewarded for company performance through:
bonuses,
restricted stock units,
stock options,
stock grants,
discounted stock purchases, and the like.
These programs offer significant upside if the company does well.
If you’re interested in a review of your situation, please…
Disclaimer
In addition to the usual disclaimers, neither this post nor this video includes any financial, tax, or legal advice.
