Investing in Company Stock: Pros and Cons
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In the late ’90s, I had a client who was excited to see his stock options increasing at a rapid rate. Over the course of a few months, he saw the value of his options increase four times, and he was a millionaire on paper literally overnight.
Wanting more and thinking it could never go down, he chose to hang on and subsequently watched his newfound wealth vanish. After a few years, the options expired as worthless, and he is now left remembering how good it was for that short time.
While investing in your company’s stock options may sound like a great perk, weigh your choices carefully before taking this step.
There are several pros to investing in stock options, particularly when you are working for an established company that has growth potential.
The above points may make it seem like investing in your company’s stock options is a no-brainer, but there are some risks involved. Here are a few:
After hearing the cons, you may be questioning whether or not owning your company’s stock options is actually a good idea. It can be a difficult decision, as there are some compelling reasons to buy and some compelling ones to stay away.
Here are some tips if you are thinking about purchasing your company’s stock options.
Never invest your money just in your company’s stock options. Most experts will tell you that no more than 10 percent to 15 percent of your investments should go into purchasing your company’s stock. I couldn’t agree more.
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Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance. He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger. You can follow his updates on Twitter.
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