Should You Buy Shares In A Company You Work For?

While there are many advantages of purchasing the shares of a company you work for, there are also risks and possible reasons why you should not.

The process of selecting a company to invest in isn’t always random – it actually shouldn’t be. However, some decide to stay close to home as they work in companies quoted on the Nigerian Stock Exchange.

This means they can purchase the shares of these companies. In fact, many companies are known to offer stock options to their staff or sharing profits by way of giving shares. A stock option is granted to an employee by an employer, giving the employee the right but not the obligation to purchase a number of shares at a specific price and by a specific date.

Based on these two opportunities (stock options and gifted shares), it is common for employees to get the shares of their companies at more affordable rates than outsiders. Some even have the opportunity to accept options in lieu of salary.

However, while there are many advantages of purchasing the shares of a company you work for, there are also risks and possible reasons why you should not.

THE PROS

Easy Way to Save/ Invest

An employee can request for a portion of his or her income to be deducted at source and kept into a sharesave scheme. For some, it is an opportunity to save.

For others, it is the only reason they would ever think of investing in the first place. Many investors have commenced their investment journeys by first passively buying the shares of the companies they work for.

It is Profitable

One of the ways to ensure that profit is recorded, is to have minimal costs. A very good incentive of many of the schemes is that they come at discounted rates through options and profit sharing schemes.

They can be purchased through Employee Stock Purchase Plans which are generally through payroll deductions. As such, they can be very profitable because of the discounts on them.

You Have Good Knowledge Of It

At the very basic level, investing in a company you work for can be good because you get to invest well within your circle of competence. You know the company so well and would already have a good level of information to carry out investment analysis for efficient viability assessment.

You Are Part of Something Bigger

Where you have a strong passion for the growth of your company, being an owner gives you the opportunity to see the impact of your daily toils. You are now part of the ownership of the company and it should give you some more excitement.

THE CONS

You Might End Up Investing In Only The Company

As a result of how convenient it is to invest in the companies they work for, people can get lost in the excitement of just that investment. It is easy to get comfortable investing in just that company until it is too late and the carpet is dragged from under their feet – and this crash can be sudden.

Investing in just one company, no matter how advantageous it currently seems is a very risky idea. If you can diversify your investments, you would circumvent a good level of risk. It is also important that you are not overweight on the company’s stock because a loss can drag a good portion of your portfolio down.

In The Event Of Failure...

When you invest in the company you work for and the company crashes, your risk level basically doubles. This is because if things get bad enough, you would not only be looking at the possibility of losing your job, but you can also lose all your investment by virtue of the company’s stock which you possess.

Insider Trading

Whether you want to accept it or not, there is an additional wave of information that you would get by being a part of the company from the inside. Not only would you know about the company’s strengths and weaknesses, you can also spot when danger is lurking and would consequently act accordingly.

This can, of course, lead to a new form of anxiety. It might also have you investing unethically – but you might not be able to help it.

It is clear that there are two sides to this coin. However, it is only after proper comparison and analysis of the pros and cons, you can then decide whether you want to invest in the shares of your company or not.

Written by Lawretta Egba.