Many retail investors have swore off individual stocks forever, choosing instead to stick with ETFs. If professional managers can’t beat the market, what chance does a regular person have?
This is good logic. But there are also situations where it’s nuts to not buy individual stocks.
One example is buying discounted stock through your employer. Often, as a perk to staff members, management will give them the option of buying shares at a discount to the current market price. A 25% reduction is the most common.
Employers usually offer limitations on how much an employee can contribute towards this plan, with 5% of salary being the general rule of thumb.
Yes, individual shares are risky, and there’s the argument to be made that if your paycheque depends on a company then maybe you shouldn’t double down and buy shares of the same business. But buying shares at such an attractive sale price easily makes up for any increased risk.
I know someone who works at a grocery store that signed up for such a plan approximately a decade ago. She contributed just 4% of her salary. Despite earning a modest salary that never surpassed $40,000 annually, she recently checked her statement and was surprised to see this account was worth more than $35,000.
The best part? She claimed that if it wouldn’t have been for the constant reminders on her paycheque, she would have completely forgotten about the contributions. They just weren’t a big deal.
Whether you accumulate shares or take them and sell quickly, buying your company’s stock at a discount is usually a pretty smart move.
