Buying shares is something that some people do a lot of and others are quite afraid of. They are a risky thing and it is probably wise to avoid them if you do not know much about them. However, when it comes to company share schemes, these tend to be worthwhile and therefore good to consider.
How do company share schemes work?
Company share schemes are not all the same, but they do tend to follow some similarities. Employees will be allowed to buy a certain amount of company shares, either regularly each month, in a lump or both. They will then be given shares and there is a chance that the employer will also give them some extra shares. The shares are often sold to employees at a low price, so if they sold them right away they would make a profit from them. It is possible that shares may have to be kept for a certain period of time and they may even have to be sold after a certain time.
How to decide whether to take part
It can be difficult to know whether this sort of scheme is worth taking part in. If you are not familiar with share trading then you may feel a bit worried about it. Buying company shares does tend to be a bit different to buying random shares though as you know how well your company is doing. You may also be given a much better deal than if you buy other shares as you could get an extra low price or some free shares. It can be worth doing some research to find out more and this could help you to decide. It might be wise to find out the following
- How well the company is performing on the stock exchange
- What their current share price is
- What you will pay for shares and if you get any free ones as well
- Are your colleagues in the scheme and do they like it
- When you can sell shares and how much for
It can also be worth thinking about whether the shares are something that you can afford to hold long term. If you have to commit to buying a certain amount each month for a certain length of time or you cannot sell them before a certain date, this could potentially be a problem for you. You may prefer something that is more flexible. Obviously schemes will differ in how flexible they are which means that it will be up to you to find out the details of the one that you are being offered. If you are unsure or just do not understand all of the terms then it could be worth asking a financial advisor for help. They will be able to let you know what you need to be aware of with the scheme and they will be able to tell you if it looks like it is worthwhile and how it compares to other company schemes.
You also need to think about your future in the job. Consider whether you will be staying in the job for a long time or whether you might be moving to a different company. If you start paying into a share scheme and then find that you want to change jobs or have to change, then it may complicate matters and you need to know whether you will be able to get your money back or what might happen to the shares that you have already bought otherwise.
Also think about whether you can afford to invest the money. You will need to put away a lump sum or money each month and there may be restrictions on when you can get sell the shares and get the money back. This may leave your hard up and unable to buy other things that you need. Also you need to think about what might happen should the shares lose value and you not be able to get back all of the money that you invested. Some company share schemes have protection against this happening, but not all of them do and so you need to be wary of this. Think about whether you think you might need that money in the near future. Perhaps if you are starting a family, moving house or having any other major life events that will be expensive then it may not be a good time to start paying into something like this. However, it all depends on how much money you have, how much the share scheme costs and how much of a risk you see it is and how much you are willing to take.
There are a lot of things to think about. It is key to make sure that you are completely aware of what the scheme involves so that you can decide whether it will suit you. Think about your financial situation as well and whether that might change in the future. Whether you decide to go ahead will very much depend on your own personal financial situation as well as how long you plan to stay in your job. The schemes will also differ in what they offer and so this will be a factor in your decision as well. So take time to think about it. It can be wise to discuss it with colleagues and see if they are using the scheme and what they think about it. Talk to family and friends as well and they will be able to let you know what they would do if they were you as well as whether they have done similar schemes with their company and what they thought of them.
If your company does not have a share scheme then buying company shares will not give you advantages such as free shares or a low price. Therefore they may not be so worthwhile buying. Of course you will still know how well the company is doing and that could be useful information for you when deciding who is a good company to invest in. However, if you know little about buying shares, it could be best to get financial advice before buying them or choose a different method of investment that you do know more about.