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by Recently I changed jobs and my new employer offers a stock purchase plan. According to this plan, employees can elect to have a certain percentage (up to 25%) of their salary withdrawn which is used to buy company stock quarterly. At the end of one year, the employee is given a bonus (in additional stock) of 15% of the purchased shares remaining. In essense, I would elect to use X% of my salary to purchase stock, and as long as I didn't sell it (and assuming the stock value didn't change), I would have 1.15*X% of my salaray in stock overnight.
I've previously discussed the benefits of high interest savings accounts and making extra payments on loans. Both are great ways to turn your money into more money, but this stock purchase plan seems to take the cake. Granted, there is always the risk of the stock taking a nosedive, but if it can at least break even, the purchaser has the opportunity to immediately sell all stock accrued over the year for what is effectively a 15% return.
As long as the interest rate on the mortgage is less than the net rate of the stock purchase plan (mortgage rate < 15% - taxes - losses), wouldn't it make economic sense to move whatever money I plan to pay extra on the mortgage into the stock purchase plan? This money then could be paid on the mortgage in one lump sum after taking advantage of the bonus stock.
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I would suggest taking a look at the annual volatility of the company stock. This will give you an idea of whether you can expect the stock to remain fairly stable over the year-long holding period. A higher volatility means higher risks and potentially higher rewards. The Risk/Reward strategy here may not play well into your home mortgage strategy.
It's hard to beat a 15% immediate return.
My companies stock is volatile and I use that. Once a year or so I dump what I consider overpriced stock into the S&P500 fund. The stock varies between $35 (absurdly low) and $80 (what are the fools thinking?) It's the brightest shining spot of my 401k but it requires lack of greed on my part to jump off the high wave before it peaks. That's hard and a part of me berates myself over not going for the extra $5/share.
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No Disagreement Here!! by Anonymous :: NR0 :: on 28 August 2007
I completely agree. My company offers a similar program. The only difference is stocks are purchased twice per annum. I'm no financial guru but essentially you are getting a free 15% if you sell the stock the day you receive the shares in your brokerage account. The only thing to keep in mind is that if you keep them for at least a year you get a tax break on your capital gains (Long Term vs. Short). Of course thats so long as the stocks don't tank.
RE: No Disagreement Here!! by shaferr :: NR4 :: on 28 August 2007
Damn! I forgot to login. There goes my nerdrank!!!