Employer Share Purchase Plans

Written by The Dividend Guy on February 8, 2007

Employee share purchase plans are great. They are an awesome way to accumulate shares in a company, often with a discount or some other benefit of buying the shares. The way my company’s share purchase plan works is that I tell payroll what percentage of my earnings I want to contribute to the savings plan. The first 5% that I contribute purchases shares in the company. As a result of doing this, the company gives me my 5% back which I in turn invest in other things (mainly dividend paying investments).

This all good, however as the value of the investment in the company builds up after buying the shares each and every month it can become a very significant portion of a person’s portfolio. I my case, the shares I own make up about 8% of my portfolio. This does not include the stock options I hold which could ultimately be worth 2 to 3 times my overall portfolio.

I have a portfolio rule that I have set up stating that no one position should not be more than 10% of my overall portfolio value. This ensures that I am adequately diversified and the potential negative impact of a crashing stock is minimized. It also ensures I am not too over-diversified so that gains are not lost in a sea of stocks.

This rule is going to apply to my employer shares as well. Once I hit that 10% mark I will pare down my holdings in the company and allocate the funds elsewhere. I believe this is a prudent and much safer way to manage a portfolio.


Recommended: ING DIRECT makes $aving money simple! Open your account online today and start earning 3.00% variable APY. No Fees and No Minimums!

del.icio.us| Digg| Furl| Reddit| Google| StumbleUpon| Technorati| Help|

1 Comment so far

  1. finance girl February 16, 2007 10:21 am

    We pretty much sell our ESPP as soon as it’s bought. We already have tons of exposure to company stock with stock awards, and selling ESPP as soon as it’s bought automatically gives us a 10% realized gain.

POST A COMMENT

If you would like to make a comment, please fill out the form below.

Name - (Required)

Email - (Required but not published)

Website - (Optional)

ENTER YOUR COMMENTS BELOW






Student Loan

www.financialwebring.com