Considerations for Investing in Your Employer

Individuals often have the option to invest in their employer via stock equity through an Employee Stock Purchase Program (ESPP), employee stock options plan, or restricted stock units, which can serve to effectively align incentives to create long-term value and provide employees the opportunity to meaningfully participate in such value creation.  These plans often provide discounts to the prevailing market price as a compensatory benefit to employees, which may make an optional investment on the part of the employee very attractive. 

While a good equity participation program can be a great way to build wealth, individuals should also be aware of the idiosyncratic risk that accompanies holding employer equity as an outsize portion of one’s portfolio. 

Owning significant equity in the same company that provides income in the form of a salary amplifies the downside of any negative catalyst.  If an employer equity position becomes significantly overweight in the context of an aggregate investment portfolio, it may be wise and beneficial to explore diversifying by creating a more strategically allocated portfolio to participate in expected returns while mitigating concentrated company risk.

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- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management