Purchasing company stock (S Corp)

[red92s]

My employer is smaller business (<50 people) and is structured where employees can buy stock at reduced prices. The minimum purchase increment is $1,000, which we have done for the last two years.

Historically the stock has performed well, well above the market. Annual returns have averaged ~15% over the last decade or more, and it's never had a flat or down year. It's a pretty stable industry, and the company is on pace to have it's best year ever in 2014.

I know things can change quickly, but I feel that this is a good investment opportunity and we should be taking better advantage of it. On the flip side, I don't want to tie too much of our financial success to my employer.

How does one ratio wanting to take advantage the excellent returns and historical performance against feeling like they are hitching all their wagons to one horse?

[disneysteve]

You should never have more than 10% of your portfolio in any one company. Some will argue that the limit should be even lower when it is your employer since if the company does poorly, you could lose both your investment and your job (see Enron). As long as you're staying under that 10% threshold, I'd go for it.

[red92s]

Thanks Steve. Is that 10% rule based on total investment size (including retirement accounts), or only investments outside of retirement?

At the moment, that $2,xxx represents essentially 100% of our non-retirement investments, but less 2% when retirement accounts are factored in.

[97guns]

i made the bulk of my wealth through an employee stock buying program, i socked away as much as they would allow me into this company, essentially becoming the "company man". it was a no brainer buying at a 15% discount. i never heard of what percentage to allocate, the only thing i knew how to do was save and this was only a savings vessel

the company i was with was very stable, expanding and had huge growing sales. i was certain of this and if the company was floundering i would have known it too, you have the best insight on the companies operations.

i held on long enough to go through 3 splits and sold off shortly after leaving the company.

[disneysteve]

Thanks Steve. Is that 10% rule based on total investment size (including retirement accounts), or only investments outside of retirement?

At the moment, that $2,xxx represents essentially 100% of our non-retirement investments, but less 2% when retirement accounts are factored in.

The rule of thumb is based on total portfolio so it sounds like you have plenty of room to add to your company holdings.

Obviously, you can invest as much as you want in the company but it does shoot up your risk when you concentrate your portfolio in one company.

[bjl584]

Thanks Steve. Is that 10% rule based on total investment size (including retirement accounts), or only investments outside of retirement?

At the moment, that $2,xxx represents essentially 100% of our non-retirement investments, but less 2% when retirement accounts are factored in.

overall portfolio. Retirement accounts plus non retirement investments.

[corn18]

What is the discount that you buy at? And how long do you have to hold it?

My company offers a 5% discount and I can sell immediately. So I by $22,500 every year and sell it the day they give it to me. So I make 5% ($1,125) immediately. With no risk. I don't ever hold the stock even though our company is doing well because I have enough exposure to my company stock in my 401k and restricted stock plan.

So, if you can buy at a 10% discount and sell immediately, buy all that they will let you.

Tom

[red92s]

What is the discount that you buy at? And how long do you have to hold it?

My company offers a 5% discount and I can sell immediately. So I by $22,500 every year and sell it the day they give it to me. So I make 5% ($1,125) immediately. With no risk. I don't ever hold the stock even though our company is doing well because I have enough exposure to my company stock in my 401k and restricted stock plan.

So, if you can buy at a 10% discount and sell immediately, buy all that they will let you.

Tom

I think we buy at a 15% discount, but if you sell any portion you are prevented for reinvesting for a number of years (3 I think?). So, that's not really an option.

[corn18]

I think we buy at a 15% discount, but if you sell any portion you are prevented for reinvesting for a number of years (3 I think?). So, that's not really an option.

Yup, not an option.

[corn18]

From the company itself in the very first instance of the shares being offered in a float. The word float is used when a company seeks to raise money by offering its shares to the public for the first time.
Following the float, shares are bought from other investors via the share market.

Say what?