questionswhat are your thoughts on employee stock purchase…

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I have no experience with ESOP (I don't work for a company that is on a market) but my advice is to maximize your company's 401k match. As far as I know, you can always just withdraw that money to pay your student loans and pay a 10% penalty. But in the end, by maximizing that match, you just gave yourself 90% of that additional match as a raise (it is also subject to regular taxes - just like your regular salary). So, if you could contribute an extra $1,000 to maximize the match, that would be $2,000 extra in your 401k, withdraw it and pay $200 (10%) penalty (and say 25% tax of $500) for a total of $1,300 more to pay student loans vs on the $750 you would have had anyway ($1,000 less $250 tax).

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I would definitely put increasing the 401k contribution as the top priority if you haven't maxed out the company match. Even after that it's possibly a better deal than the ESPP.

I max my 401k and roth first, and have considered contributing to the ESPP for the small match, but I don't like owning stock in my employer. When things go bad for the business the chances that the stock will tank at the same time you're laid off make ESPP's a risky move.

A 15% discount is nice, but I would make sure your company stock is never more than 5% of your full portfolio.

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We had an ESOP at my current job. The stock was earned by length of employment and salary amount, not purchased by employee. Since the company sold in May we were informed this would be no longer a benefit. It was great, but if I had to invest my own money, I would opt for an IRA.

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asking money advice from this group? that is crazy. but so is this group about saving money so maybe not so crazy. you might be better off to talk to a financial planner (maybe) to see where your goals and needs truely are best served.

and by the way i applaud you desire to pay off the student loans quickly.

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@samstag: I see where you are coming from on not owning much stock in the company you work at. BUT...What if you do work for a company that fits into the stock profile (risk / return) you would normally invest in?

For example, my strategy is buying and holding long term dividend paying stocks. I work for one of those companies. I absolutely own more than 5% of my portfolio in company stock. It's about 20% right now, but with it's stock much higher now, I have cut back my purchases and have been allocating more toward my other diversified investments.

back to the initial question...a 15% discount, but have to hold for a certain timeframe, is not as good a deal as maxing out the company match. 100% automatic ROI vs an unknown (maybe 15%) ROI. And yes, I get a match on my company stock purchase because it is an option in our 401K, so I'm getting it at half-price, plus the 3.5% dividend per share.

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I'm staggered that a co-worker would give you such terrible advice. Yeah, I said terrible (and I meant it, too).

Always Always ALWAYS max out your 401K before doing anything else. You should especially invest as much in your 401K as your employer matches. You should also take an active interest in your 401K, being sure that the areas it is invested in are a good mix, and able to maximize what you've put in. I've commented multiple times on investing, here.

It's nice that your employer is offering their stock at a discount, but consider whether that's a good long term investment, before you buy. You don't want it to be an ENRON, or WAMU, or Global Crossing (to name a few), down the road. You should look carefully at the medium and long term performance of your employer's stock. It will not pay to buy something at a 15% discount, and then have the market reduce 20% of the value...

Back later...

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@jkaleda: Holding so much of your employer's stock is risky even if it fits your investment strategy because you're not diversifying enough. Generally no single company should be anywhere near 20% of your portfolio. You'd be better off owning stock in many companies similar to your employer than to put so much in just one.

10 years ago everyone used to say be careful of putting too much into your employer's stock, unless it was a big diversified company like GE. Well, I worked for GE and used to own a lot of their stock, and that went pretty badly for me. Even though I didn't get laid off and they're still a strong company, the stock tanked and is a still a long way from the price I was buying it for.

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@benyust2: the 10% penalty is ON TOP OF your current tax bracket. For my wife and I, we would be paying almost 50% of the value of a dollar in taxes/penalties. You explain this, but what you don't say is if you don't touch your 401k until you're supposed to, there's no 10% penalty and you won't be working anymore so you're tax bracket will be much lower. Plus, you have to consider the market growth of your 401k over the 30 or so years of having it in there. Touching it now is a TERRIBLE idea when you compare the amount of money you get today vs. the amount of money you will get if used properly.

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Our stock has traditionally been very low risk and has sometimes been known to have great returns, but I certainly would never have it make up a large portion of my portfolio.

I'm glad to hear that I was totally right in that I should up my 401k first (definitely seemed like a no brainer). But have no fear, I can still up that...again, I only put in the minimum into the stock purchase plan. I also don't plan to dip into my 401k to pay student loans. I just need to reorganize a bit to make room for putting a bit more into the 401k.

Thanks for input folks and look forward to whatever else anyone has to say on the subject. Not just on my situation but in general on investing/saving for retirements/IRA's/portfolios/401ks.

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First, I strongly agree that placing your retirement savings into a 401k/IRA or some other self directed plan is almost always a better option. I say almost always because it does depend a bit on how good or bad the plan is. A well run plan, with very low costs and good choices (read: index funds of various types) is better. However, some employer offered plans are appallingly bad. Very few choices, poorly performing funds with very high costs (some even have front loads, fer crissake), and management fees as high as 5%.

The ESOP may not be a bad choice if you have a decent company (ok stock) and you get a good discount on the price and the vesting plan isn't too draconian. The huge downside (as noted above): think Enron, Worldcom, and others. Enron had huge incentives for their employees to place their retirement savings in Enron stock. That was lunacy. When Enron collapsed they lost their jobs and their retirement savings as well.

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@wilfbrim: Definitely. My company does not encourage people to use the stock purchase plan in place of long term retirement savings. I know many folks here don't yet have portfolios outside of their 401ks and just have the ESPP (that's what we call it here...not sure if that is the same thing as an ESOP)...they buy and sell each year.

The 15% return is more secure because you actually get the discount off the lower of the price on the first and last day of the program (it runs annually). It's definitely not something I was planning to do for long term investment, just something that folks around here have seen as a great return. For me, just something to put a little bit of money into for now. But I think personally I need to up my 401k, too. Thankfully, I'm just starting out - I think I've been fortunate to start out in a company with any of these benefits right out of college. But I have a lot to learn here - hence why I try to ask around :)

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Don't walk away from free $!!

401k - Contribute at least to the company match. If the total is less than 10% of your salary consider putting money in a post-tax Roth IRA. I'm not an accountant but my understanding is that 401k withdrawals will be counted as taxable income and the Roth will not - gives you tax diversity and you may be able to better control your tax bracket.

Stock Purchase - Do it! Full amount you can and sell the stuff immediately. If you are financially stable at the moment, and your company seems to be too then consider keeping some for the year / two years it takes to get the better deal on taxes. Don't keep too much there - having your income and savings dependent on one company is bad investing.

Opportunity Cost - You don't always hear this advice and some think it is unwise but make sure that you place value on having experiences and enjoyment now, and balance that against saving for an uncertain future. DO save and don't walk away from the free money!

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My company used to offer a discounted stock to employees. A while back, they bought back all shares of employee held stock purchased under the program. Shortly thereafter, they issued a special dividend of $10 a share (about 1/3 the face value of the stock). I am not a fan.

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Single stocks are one of the riskiest investments out there. Even if you work for the company, one really bad quarter and suddenly all your hard-earned stock options will go up in smoke. Same with any company's single stock. I'd suggest making sure you're diversified in your retirement accounts.

As for 401k/student loan balance... ultimately it's up to you and your priorities. There are good arguments on both sides, so which do you want to do, get out of debt or try to make sure your retirement is set. You have to follow your gut here, since when it comes to that level of personal finance, lots of people forget that 90% of that is 'personal'.

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The company I work for falls under the dividend aristocrat category. Meaning the dividend has been paid and increased every year/quarter for at least 25 str8 years. We are somewhere around 40 years now. I understand all of that could fall thru at any time which is why I'm holding it at 20%. The rest is in a mix of other low fee funds that are options in our 401K.