Recently, I have faced the same question from two different clients at two different companies. Listen in on our conversation:
Nearly retired client, nervously asks, “Is my company stock a bad deal?”
“Whatever makes you think that?” I ask.
“I mean, management allows us to buy it in our retirement accounts. They encourage us to buy it. In fact, to reach a certain level in the company I need to own a lot of it. They assure me it is a good (in fact a great) deal and that I will be able to retire rich from just my share of XYZ company.”
“This sounds wonderful, but you seem skeptical,” I reply.
“Of course I am. Here are all the reasons this sounds too good to be true…” At which point the nearly retired person explains what amounts to the best financial advice they could ever hear, from anyone, and they gave it to themselves.
Walk through this logically, on your own, and for your own company (if this is appropriate). Let’s assume that all companies are run by a person (or people). There are only two reasons a person will make a decision: financial or non-financial. The financial decision is fairly simple to measure, so we’ll look at that first. The non-financial decision making is the reason for the existence of financial planners–we’ll have to have a conversation about this together over coffee sometime; stay tuned.
A person making a financial decision makes that decision either for gain or for loss. Purposely losing money is counter-intuitive and illogical. Either management has non-financial motives or we do not understand all the financial remunerations they receive. Ask a series of questions and you may be able to ascertain whether this company is where you want to place your trust. In other words, will this decision make more or less money now or in the future? Will I be rewarded? And when? What are the risks to me?
The non-financial reasons that management makes decisions are more numerous and powerful than the logical reasons. The decision to give you the right to purchase company stock at a discount, or inside your retirement plan, or stock options, or any variation thereof, may not be in your best interest. The non-financial decisions drive most of our decisions as people. We fool ourselves when we think that management, working for a profit-driven company, makes logical decisions. Of course not. Look to your experience. Read a Dilbert cartoon.
We are people driven by passions. We rationalize after the fact and make the most of what we decided, for better or worse. Lean on your advisor to help you feel deeply and still make logical long-term financial decisions and you will be successful. Laugh alongside the pointy-haired manager, but keep your personal finances personal.