too much $ in my company of work?

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wsiddiqi
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too much $ in my company of work?

Post by wsiddiqi » Sun Dec 17, 2017 2:16 am

Hello fellow bogleheads

Long time reader, first time poster

Doing my annual portfolio rebalancing. The company I work (large cap value) for has done well this year.
As such its stock is now about 11% of my portfolio. This is in ESPP and RSUs. I am thinking that may be too concentrated.
Please help me think through this- should I leave it as it is or sell and re-allocate to an index fund.

If I sell it to rotate will trigger quite a bit of tax hit. All my other investments are in index funds. Currently portfolio allocation is

Cash 12%
Bonds 15%
US stock 44% (11% my company + 33% other US stock)
International Stock 20%
Others (REITS, Commodities) 7%

Ignore rounding, I am 51. Any feedback would be appreciated. Thanks

mhalley
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Re: too much $ in my company of work?

Post by mhalley » Sun Dec 17, 2017 2:24 am

I would say the maximum in co stock is around 10 %. If you will be buying more, the I would sell some. Some recommend as high as 20%, but that seems risky to me.
http://www.finra.org/investors/alerts/p ... 1k-problem
Last edited by mhalley on Sun Dec 17, 2017 2:29 am, edited 1 time in total.

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catdude
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Re: too much $ in my company of work?

Post by catdude » Sun Dec 17, 2017 2:25 am

Welcome to the forum!

In my (un-expert) opinion, having 11% of your portfolio in company stock is probably on the outer boundary of being OK. But no more than that. I assume that payroll deductions are set, in part, to purchase company stock. Can you turn that off? That is, can you re-set your payroll deductions to no longer buy company stock? Will your company allow that? If you can do that, then that 11% will gradually decline to a safer level -- say, 5% or so.

Just my $.02 worth.
catdude | | "I yield to the gentleman for a few feeble remarks." (Congressman Thaddeus Stevens)

wsiddiqi
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Re: too much $ in my company of work?

Post by wsiddiqi » Sun Dec 17, 2017 2:34 am

hi

thanks for the quick responses. Yes auto deduction is currently set to purchase espp stock. However at 15% discount and an 18 month window, its a bit of a no-brainer to participate in ESPP. So perhaps what I need to do moving forward is keep purchasing the ESPP but sell it as soon I get . That way I keep the gains but not increase the company exposure?

But for argument - whats the problem here with me keep purchasing and hanging on to the stock as I have done in the past?
I get hit with an Enron style metldown at the company? None of my 401k is in my companys stock

Grt2bOutdoors
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Re: too much $ in my company of work?

Post by Grt2bOutdoors » Sun Dec 17, 2017 3:23 am

Do you not mind losing money? You essentially have a concentrated bet that says “my pick will meet or outperform the market long term”. Take a look at market history, there are usually a small percentage of stocks which outperform, the remainder usually are either average or below average. What happens to stocks with mediocre results, they get clobbered in real life while the rest of the market continues onwards over time.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

ThrustVectoring
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Re: too much $ in my company of work?

Post by ThrustVectoring » Sun Dec 17, 2017 5:19 am

Look at IBM's stock price history leading up to their 1993 mass layoff as a cautionary tale, and then sell off company stock as soon as you can do so without forfeiting significant incentives.

Longdog
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Re: too much $ in my company of work?

Post by Longdog » Sun Dec 17, 2017 5:37 am

If those RSUs are not vested, they really shouldn’t be counted. They have no current value. The old adage, “don’t count your chickens before they’ve hatched” comes to mind. If they have vested, then they are no longer RSUs, they are simply shares of stock. Which is it?

At a minimum, I would recommend that you sell the stock, once the RSUs vest, and invest the proceeds in accordance with your desired asset allocation.
Steve

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Re: too much $ in my company of work?

Post by AlohaJoe » Sun Dec 17, 2017 5:44 am

wsiddiqi wrote:
Sun Dec 17, 2017 2:16 am
The company I work (large cap value) for has done well this year.
If I sell it to rotate will trigger quite a bit of tax hit. All my other investments are in index funds.
As a back-of-the-envelope guess, the tax hit is around 8% of the total value (15% capital gains tax on the profits, assuming 100% increase from cost basis). Individual stocks drop 8% in a single day very regularly. It doesn't seem like a large tax hit to me.

Nate79
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Re: too much $ in my company of work?

Post by Nate79 » Sun Dec 17, 2017 7:57 am

wsiddiqi wrote:
Sun Dec 17, 2017 2:34 am
hi

thanks for the quick responses. Yes auto deduction is currently set to purchase espp stock. However at 15% discount and an 18 month window, its a bit of a no-brainer to participate in ESPP. So perhaps what I need to do moving forward is keep purchasing the ESPP but sell it as soon I get . That way I keep the gains but not increase the company exposure?

But for argument - whats the problem here with me keep purchasing and hanging on to the stock as I have done in the past?
I get hit with an Enron style metldown at the company? None of my 401k is in my companys stock
I would say 15% discount and 18 month holding period is not a good deal. Very normal in fact and the 18 months makes it meh to no thanks.

carolinaman
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Re: too much $ in my company of work?

Post by carolinaman » Sun Dec 17, 2017 8:01 am

wsiddiqi wrote:
Sun Dec 17, 2017 2:34 am
hi

thanks for the quick responses. Yes auto deduction is currently set to purchase espp stock. However at 15% discount and an 18 month window, its a bit of a no-brainer to participate in ESPP. So perhaps what I need to do moving forward is keep purchasing the ESPP but sell it as soon I get . That way I keep the gains but not increase the company exposure?

But for argument - whats the problem here with me keep purchasing and hanging on to the stock as I have done in the past?
I get hit with an Enron style metldown at the company? None of my 401k is in my companys stock
Keep an eye on the proposed new tax reform law which may be passed this week. It includes requirement that you must sell the oldest stock first which would increase your tax liability. Do not do anything until or if it passes, but if it passes it affects your stock sell strategy.

AlohaJoe
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Re: too much $ in my company of work?

Post by AlohaJoe » Sun Dec 17, 2017 8:20 am

carolinaman wrote:
Sun Dec 17, 2017 8:01 am
Keep an eye on the proposed new tax reform law which may be passed this week. It includes requirement that you must sell the oldest stock first which would increase your tax liability.
No it doesn't. Which is why discussing proposed legislation is banned on this forum....

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dm200
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Re: too much $ in my company of work?

Post by dm200 » Sun Dec 17, 2017 8:23 am

wsiddiqi wrote:
Sun Dec 17, 2017 2:16 am
Hello fellow bogleheads

Long time reader, first time poster

Doing my annual portfolio rebalancing. The company I work (large cap value) for has done well this year.
As such its stock is now about 11% of my portfolio. This is in ESPP and RSUs. I am thinking that may be too concentrated.
Please help me think through this- should I leave it as it is or sell and re-allocate to an index fund.

If I sell it to rotate will trigger quite a bit of tax hit. All my other investments are in index funds. Currently portfolio allocation is

Cash 12%
Bonds 15%
US stock 44% (11% my company + 33% other US stock)
International Stock 20%
Others (REITS, Commodities) 7%

Ignore rounding, I am 51. Any feedback would be appreciated. Thanks
Maybe make a charitable contribution of appreciated stock?

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dm200
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Re: too much $ in my company of work?

Post by dm200 » Sun Dec 17, 2017 8:25 am

ThrustVectoring wrote:
Sun Dec 17, 2017 5:19 am
Look at IBM's stock price history leading up to their 1993 mass layoff as a cautionary tale, and then sell off company stock as soon as you can do so without forfeiting significant incentives.
Absolutely .. Many IBM employees held large concentrations of stock -- and believed BOTH: 1. you could never lose money on IBM stock AND 2. you would never be laid off.

BOTH were not true -- and many such employees lost their jobs at the same time the stock plummeted a huge amount.

Valuethinker
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Re: too much $ in my company of work?

Post by Valuethinker » Sun Dec 17, 2017 9:09 am

dm200 wrote:
Sun Dec 17, 2017 8:25 am
ThrustVectoring wrote:
Sun Dec 17, 2017 5:19 am
Look at IBM's stock price history leading up to their 1993 mass layoff as a cautionary tale, and then sell off company stock as soon as you can do so without forfeiting significant incentives.
Absolutely .. Many IBM employees held large concentrations of stock -- and believed BOTH: 1. you could never lose money on IBM stock AND 2. you would never be laid off.

BOTH were not true -- and many such employees lost their jobs at the same time the stock plummeted a huge amount.
Other horrendous examples (Enron, Worldcom of course-- huge layoffs and loss of all equity value).

Nortel, once 25% of the Canadian index and the world's largest telecoms equipment manufacturer. Stock peaked at something like $140 and declined to $0.01 (where I sold it ;-)).

So employees lost hundreds of thousands or millions of dollars in stock. It was a "job for life" kind of place, especially in Ottawa ONT.

AND there is no PBGC equivalent in Canada. Employees lost large fractions of their Defined Benefit pension benefits.

Lack of diversification is really a great danger.

Valuethinker
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Re: too much $ in my company of work?

Post by Valuethinker » Sun Dec 17, 2017 9:11 am

wsiddiqi wrote:
Sun Dec 17, 2017 2:16 am
Hello fellow bogleheads

Long time reader, first time poster

Doing my annual portfolio rebalancing. The company I work (large cap value) for has done well this year.
As such its stock is now about 11% of my portfolio. This is in ESPP and RSUs. I am thinking that may be too concentrated.
Please help me think through this- should I leave it as it is or sell and re-allocate to an index fund.

If I sell it to rotate will trigger quite a bit of tax hit. All my other investments are in index funds. Currently portfolio allocation is

Cash 12%
Bonds 15%
US stock 44% (11% my company + 33% other US stock)
International Stock 20%
Others (REITS, Commodities) 7%

Ignore rounding, I am 51. Any feedback would be appreciated. Thanks
You are at about the reasonable limit for employer stock. When the tax permits you to sell for lower tax rate, I would try to get it back down to 10%. That really is about the long term max. Most of us could take being 10% worse off, if our employer hit the wall.

Re cash does that include emergency cash? How many months expenses-- most of us, I believe, in this day and age should plan for unemployment of 12 months if we lose our jobs.

But otherwise all that cash is a long term drag on performance-- I would suggest 20% in bonds. Even a Short Term bond fund will pay better returns than cash.

bgf
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Re: too much $ in my company of work?

Post by bgf » Sun Dec 17, 2017 9:14 am

Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

dbr
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Re: too much $ in my company of work?

Post by dbr » Sun Dec 17, 2017 9:32 am

bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
Of course. And then you sell it as soon as allowed. A typical holding for ESPP might be a year. RSUs should also be sold as soon as possible. Back in the day we could sell from the Megacorp ESPP the same day the award was made, monthly. If you get 15% off on 10% of your salary that is a running pay increase of 1.5%, which is small but not completely negligible. Once you are accumulating a significant fraction of significant assets in a single company stock, own company stock, you have risk you really don't want, which is why you should be liquidating the investment judiciously.

Dottie57
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Re: too much $ in my company of work?

Post by Dottie57 » Sun Dec 17, 2017 9:44 am

bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
It is a 15% discount at time of purchase , not at time of sale. 18 months is a long time for a stock to lose value.

I used to participate in ESPP. But then the company stock lost half of its value. It took SEVEN YEARS to recover much less make money for me. The holding period was just until the stock made its way into the holding company. Less than a. Month.

Becareful, that 15% discount may no longer be there when you want to sell. Nothing is a slam dunk.

3funder
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Re: too much $ in my company of work?

Post by 3funder » Sun Dec 17, 2017 9:47 am

dm200 wrote:
Sun Dec 17, 2017 8:25 am
ThrustVectoring wrote:
Sun Dec 17, 2017 5:19 am
Look at IBM's stock price history leading up to their 1993 mass layoff as a cautionary tale, and then sell off company stock as soon as you can do so without forfeiting significant incentives.
Absolutely .. Many IBM employees held large concentrations of stock -- and believed BOTH: 1. you could never lose money on IBM stock AND 2. you would never be laid off.

BOTH were not true -- and many such employees lost their jobs at the same time the stock plummeted a huge amount.
Unless you survived the layoffs, saw the value in IBM's software and services business, bought the stock as part of the ESPP around the time Gerstner came aboard, and sold 5 years later (I know somebody who did).

Jack FFR1846
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Re: too much $ in my company of work?

Post by Jack FFR1846 » Sun Dec 17, 2017 9:58 am

I sell on vesting and consider any holding in my own company stock to be extremely risky.

I've had one company ESPP at a buy price of $48 and sold when I left the company at $12.
I've had Polaroid at $7 and sold at 8 cents. I had plenty of friends who worked there who were laid off, had a good portion of their 401k in company stock and watched it's value go to zero as bankruptcy came about.
Semtech options purchased at $13 and sold when vested at $38. In 6 months, they were down to $13 again.

Plenty of companies do this and you don't know when it's coming. Especially if you are inside the company. What "I" would do is sell all on Monday at market, take the gain and pay the taxes. Invest in far less risky funds.
Bogle: Smart Beta is stupid

Dandy
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Re: too much $ in my company of work?

Post by Dandy » Sun Dec 17, 2017 10:17 am

I understand the issue you face and it is often a trap i.e. sell now and incur "unnecessary" taxes or hold and face a possible but seemingly unlikely major decline/loss of company stock value. Been there. I joined a major investment/brokerage firm late in my career and their stock was at about 60 when I joined and in a few years went to about 120, split 2 for 1 and went back to 120 or so in the span of six years or so. The culture was heavy into company stock, e.g. the company 401k match was in co. stock and there were no other options for it. A large percent of large bonuses were allocated to stock units that couldn't be sold for several years, and they had a ESPP program with a 15% discount, etc.

Long term employees had major allocations to company stock and were quite happy. In the 2007-08 time frame things started to sour a bit - the inside word was "not to worry" we are taking steps to ....." Well many people held on to their shares as they went from about 120 to about 8. They were making good money and trusted the company and its track record. They also had large cap gains. Eventually, many layoffs occurred and many rosy retirement plans were ruined. 20% capital gains tax looked good when they looked back.

I was fortunate that as a relatively new employee and one that kept company stock to 5% I was not overly harmed. But, even I had a hard time incurring "unnecessary" taxes while making good money.

Company stock is a non diversified risk. You may wish to take steps to reduce/cap your exposure.

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Re: too much $ in my company of work?

Post by pkcrafter » Sun Dec 17, 2017 10:38 am

wsiddiqi wrote:
Sun Dec 17, 2017 2:16 am
Hello fellow bogleheads

Long time reader, first time poster

Doing my annual portfolio rebalancing. The company I work (large cap value) for has done well this year.
As such its stock is now about 11% of my portfolio. This is in ESPP and RSUs. I am thinking that may be too concentrated.
Please help me think through this- should I leave it as it is or sell and re-allocate to an index fund.

If I sell it to rotate will trigger quite a bit of tax hit. All my other investments are in index funds. Currently portfolio allocation is

Cash 12%
Bonds 15%
US stock 44% (11% my company + 33% other US stock)
International Stock 20%
Others (REITS, Commodities) 7%
Just looking at U.S. stocks (U.S. 44% + 7% other), you have 21% in company stock. Overall AA is 71/29. 98% total

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

KlangFool
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Re: too much $ in my company of work?

Post by KlangFool » Sun Dec 17, 2017 10:46 am

Nate79 wrote:
Sun Dec 17, 2017 7:57 am
wsiddiqi wrote:
Sun Dec 17, 2017 2:34 am
hi

thanks for the quick responses. Yes auto deduction is currently set to purchase espp stock. However at 15% discount and an 18 month window, its a bit of a no-brainer to participate in ESPP. So perhaps what I need to do moving forward is keep purchasing the ESPP but sell it as soon I get . That way I keep the gains but not increase the company exposure?

But for argument - whats the problem here with me keep purchasing and hanging on to the stock as I have done in the past?
I get hit with an Enron style metldown at the company? None of my 401k is in my companys stock
I would say 15% discount and 18 month holding period is not a good deal. Very normal in fact and the 18 months makes it meh to no thanks.
+1.

I would not participate in this kind of ESPP.

KlangFool

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Re: too much $ in my company of work?

Post by KlangFool » Sun Dec 17, 2017 10:50 am

Dottie57 wrote:
Sun Dec 17, 2017 9:44 am
bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
It is a 15% discount at time of purchase , not at time of sale. 18 months is a long time for a stock to lose value.
Dottie57,

15% discount on what price?

There are several variations of that.

Usually, there is a measurement period.

A) Average of the beginning and ending period price

B) The lower of the two: beginning and ending period price

C) The higher of the two: beginning and ending period price

The devil is in the details.

KlangFool

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Re: too much $ in my company of work?

Post by KyleAAA » Sun Dec 17, 2017 10:57 am

Best practice for ESPP. Unless your Program has any crazy non-standard provisions it’s probably a good deal. If they let you buy at a discount to the lower of the start and end price it’s a no brainer.

https://blog.wealthfront.com/good-espp-no-brainer/

KlangFool
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Re: too much $ in my company of work?

Post by KlangFool » Sun Dec 17, 2017 11:00 am

KyleAAA wrote:
Sun Dec 17, 2017 10:57 am
Best practice for ESPP. Unless your Program has any crazy non-standard provisions it’s probably a good deal. If they let you buy at a discount to the lower of the start and end price it’s a no brainer.

https://blog.wealthfront.com/good-espp-no-brainer/
KyleAAA,

I disagreed. As per my own experience, none of my employer's ESPP is worth participating. I do not believe there is any real standard. I had seen too many variations to believe that there is one.

KlangFool

quantAndHold
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Re: too much $ in my company of work?

Post by quantAndHold » Sun Dec 17, 2017 11:30 am

bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
It’s the 18 month holding period that’s the problem. A lot can happen to the company and the economy in 18 months. I’ve owned ESPP stock at multiple companies, all with a 12 month holding period. At one company, in 1998-99, I made enough money on the ESPP stock to put a very significant down payment on a house. During the holding period at the next company, the stock market tanked, the company execs were all indicted for securities fraud, the company went bankrupt, about half the employees got laid off, the stock went from $23 to $2.30 overnight, and I felt lucky the day I was able to sell the stock for $0.26/share. Fortunately, I only lost about $20k.

As far as the original question, my recommendation is to never have more company stock than you can afford to have go to zero. 10% seems like a reasonable amount if the company is Google, less if it isn’t.

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dm200
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Re: too much $ in my company of work?

Post by dm200 » Sun Dec 17, 2017 11:50 am

3funder wrote:
Sun Dec 17, 2017 9:47 am
dm200 wrote:
Sun Dec 17, 2017 8:25 am
ThrustVectoring wrote:
Sun Dec 17, 2017 5:19 am
Look at IBM's stock price history leading up to their 1993 mass layoff as a cautionary tale, and then sell off company stock as soon as you can do so without forfeiting significant incentives.
Absolutely .. Many IBM employees held large concentrations of stock -- and believed BOTH: 1. you could never lose money on IBM stock AND 2. you would never be laid off.
BOTH were not true -- and many such employees lost their jobs at the same time the stock plummeted a huge amount.
Unless you survived the layoffs, saw the value in IBM's software and services business, bought the stock as part of the ESPP around the time Gerstner came aboard, and sold 5 years later (I know somebody who did).
Sure - there were winners at IBM. I knew very well a third generation IBMer - whose wife also worked for IBM - who was hit by those IBM layoffs. It was terrible for them - BOTH financially and emotionally. Their entire belief system crumbled - as though you are a devout and committed adherent to a religion or denomination - and find out (in your belief) - "There is no God"

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Re: too much $ in my company of work?

Post by KyleAAA » Sun Dec 17, 2017 11:56 am

quantAndHold wrote:
Sun Dec 17, 2017 11:30 am
bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
It’s the 18 month holding period that’s the problem. A lot can happen to the company and the economy in 18 months. I’ve owned ESPP stock at multiple companies, all with a 12 month holding period. At one company, in 1998-99, I made enough money on the ESPP stock to put a very significant down payment on a house. During the holding period at the next company, the stock market tanked, the company execs were all indicted for securities fraud, the company went bankrupt, about half the employees got laid off, the stock went from $23 to $2.30 overnight, and I felt lucky the day I was able to sell the stock for $0.26/share. Fortunately, I only lost about $20k.

As far as the original question, my recommendation is to never have more company stock than you can afford to have go to zero. 10% seems like a reasonable amount if the company is Google, less if it isn’t.
Most ESPPs don’t have a holding period i.e. you can sell immediately for a guaranteed gain. I don’t believe the 18 months mentioned here refers to a required holding period.

dbr
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Re: too much $ in my company of work?

Post by dbr » Sun Dec 17, 2017 12:00 pm

KyleAAA wrote:
Sun Dec 17, 2017 11:56 am
quantAndHold wrote:
Sun Dec 17, 2017 11:30 am
bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
It’s the 18 month holding period that’s the problem. A lot can happen to the company and the economy in 18 months. I’ve owned ESPP stock at multiple companies, all with a 12 month holding period. At one company, in 1998-99, I made enough money on the ESPP stock to put a very significant down payment on a house. During the holding period at the next company, the stock market tanked, the company execs were all indicted for securities fraud, the company went bankrupt, about half the employees got laid off, the stock went from $23 to $2.30 overnight, and I felt lucky the day I was able to sell the stock for $0.26/share. Fortunately, I only lost about $20k.

As far as the original question, my recommendation is to never have more company stock than you can afford to have go to zero. 10% seems like a reasonable amount if the company is Google, less if it isn’t.
Most ESPPs don’t have a holding period i.e. you can sell immediately for a guaranteed gain. I don’t believe the 18 months mentioned here refers to a required holding period.
Some years ago at Megacorp they moved from sell immediately to one year holding. I can't attest to whether few, many, or most companies do one thing or another. I stopped participating at that point.

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dm200
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Re: too much $ in my company of work?

Post by dm200 » Sun Dec 17, 2017 12:40 pm

Not applicable to me now, but what I would probably do is fully participate (to get discount), and consider my holdings an "at risk" part of my investments/assets. Then, I would set some kind of limit and, as allowed dispose of holdings over the limit.

Seems to me that a Donor advised fund could be helpful in donating appreciated stock to charity..

Dottie57
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Re: too much $ in my company of work?

Post by Dottie57 » Sun Dec 17, 2017 12:46 pm

KlangFool wrote:
Sun Dec 17, 2017 10:50 am
Dottie57 wrote:
Sun Dec 17, 2017 9:44 am
bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
It is a 15% discount at time of purchase , not at time of sale. 18 months is a long time for a stock to lose value.
Dottie57,

15% discount on what price?

There are several variations of that.

Usually, there is a measurement period.

A) Average of the beginning and ending period price

B) The lower of the two: beginning and ending period price

C) The higher of the two: beginning and ending period price

The devil is in the details.

KlangFool
Doesn't matter what price. In 18 months price can change dramatically. 18 months, in my estimate is too long to be required to hold. YMMV.

quantAndHold
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Re: too much $ in my company of work?

Post by quantAndHold » Sun Dec 17, 2017 12:59 pm

KyleAAA wrote:
Sun Dec 17, 2017 11:56 am
quantAndHold wrote:
Sun Dec 17, 2017 11:30 am
bgf wrote:
Sun Dec 17, 2017 9:14 am
Let me get this straight. You get to purchase stock at a straight up 15% discount?

Why are so many people against this? That's a 15% margin of error built in automatically... If it is a good company worthy of investment then it certainly would be with a 15% discount!

If the company is struggling that's a different story.
It’s the 18 month holding period that’s the problem. A lot can happen to the company and the economy in 18 months. I’ve owned ESPP stock at multiple companies, all with a 12 month holding period. At one company, in 1998-99, I made enough money on the ESPP stock to put a very significant down payment on a house. During the holding period at the next company, the stock market tanked, the company execs were all indicted for securities fraud, the company went bankrupt, about half the employees got laid off, the stock went from $23 to $2.30 overnight, and I felt lucky the day I was able to sell the stock for $0.26/share. Fortunately, I only lost about $20k.

As far as the original question, my recommendation is to never have more company stock than you can afford to have go to zero. 10% seems like a reasonable amount if the company is Google, less if it isn’t.
Most ESPPs don’t have a holding period i.e. you can sell immediately for a guaranteed gain. I don’t believe the 18 months mentioned here refers to a required holding period.
If that's actually the case here, then yes, contribute to the limit and sell immediately. I was just responding to OP's stated holding period.

3funder
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Re: too much $ in my company of work?

Post by 3funder » Sun Dec 17, 2017 3:35 pm

dm200 wrote:
Sun Dec 17, 2017 11:50 am
3funder wrote:
Sun Dec 17, 2017 9:47 am
dm200 wrote:
Sun Dec 17, 2017 8:25 am
ThrustVectoring wrote:
Sun Dec 17, 2017 5:19 am
Look at IBM's stock price history leading up to their 1993 mass layoff as a cautionary tale, and then sell off company stock as soon as you can do so without forfeiting significant incentives.
Absolutely .. Many IBM employees held large concentrations of stock -- and believed BOTH: 1. you could never lose money on IBM stock AND 2. you would never be laid off.
BOTH were not true -- and many such employees lost their jobs at the same time the stock plummeted a huge amount.
Unless you survived the layoffs, saw the value in IBM's software and services business, bought the stock as part of the ESPP around the time Gerstner came aboard, and sold 5 years later (I know somebody who did).
Sure - there were winners at IBM. I knew very well a third generation IBMer - whose wife also worked for IBM - who was hit by those IBM layoffs. It was terrible for them - BOTH financially and emotionally. Their entire belief system crumbled - as though you are a devout and committed adherent to a religion or denomination - and find out (in your belief) - "There is no God"
That's unfortunate. Were they able to find other work within a reasonable period of time?

wsiddiqi
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Re: too much $ in my company of work?

Post by wsiddiqi » Sun Dec 17, 2017 4:10 pm

Hi folks

thanks for the feedback. Let me clarify a few things

the cash in my holding doesn't include emergency cash. Thats a separate bucket and is not part of my portfolio. This cash money is essentially to pay for upcoming university expenses for the kids. I dont want to take a risk there so its in cash for this need for the next 2 years

RSU is vested so yes its my stock. I dont count unvested RSU as mine until its vested.

ESPP - We get 15% off the lowest price at the beginning & end of a 18 month period. So its a good deal.I am able to sell it off the day its deposited in my account at the end of that period. There is usually a lag of 1-2 days when the company purchases the stock and deposits it in our account. This happens every 6 month i.e end of June and end of Dec. so for example on Dec 31 2017, the company will buy 15% off lowest stock price on dec 31 2017 or June 30 2016. Stock will show up by Jan 2-3 2018 and I can sell it right away if I want to.

I already use these appreciated ESPP stock for charity donation. I've been doing so for last 10 years and will continue to do so.

So it seems that 10% current may be Ok but anything more is too concentrated. BTW, we have unannounced layoffs every year. Pretty much used to it. If it happens, it happens. However the company potentially crashing (a la IBM example) is a real concern so I am thinking I will sell future ESPP purchases to lock in the gain and then diversify to regular allocation via index funds.

BTW I am 50. hoping to hit my 2nd million by 51 as the other post :)

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nedsaid
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Re: too much $ in my company of work?

Post by nedsaid » Sun Dec 17, 2017 5:55 pm

wsiddiqi wrote:
Sun Dec 17, 2017 2:16 am
Hello fellow bogleheads

Long time reader, first time poster

Doing my annual portfolio rebalancing. The company I work (large cap value) for has done well this year.
As such its stock is now about 11% of my portfolio. This is in ESPP and RSUs. I am thinking that may be too concentrated.
Please help me think through this- should I leave it as it is or sell and re-allocate to an index fund.

If I sell it to rotate will trigger quite a bit of tax hit. All my other investments are in index funds. Currently portfolio allocation is

Cash 12%
Bonds 15%
US stock 44% (11% my company + 33% other US stock)
International Stock 20%
Others (REITS, Commodities) 7%

Ignore rounding, I am 51. Any feedback would be appreciated. Thanks
Cut back your company stock to 5% of your net worth. You will sleep better. If you fear a big tax bill, then space the selling over three years or so. Think of the poor slobs at Enron, Washington Mutual, and Worldcomm who not only worked for these companies but also had substantial portions of their net worth tied up in their company stock. In many cases, these employees suffered the double whammy of worthless company stock and getting laid off.

With 11% of your net worth tied up in company stock, you aren't a riverboat gambler but you are getting above the 10% rule of thumb for company stock. Another thing to consider is that with ESPP, you often get to purchase stock at a discount, sometimes up to 15% off from market price. Your holding period to get favorable long term capital gains tax treatment is often two years. On the one hand, I don't want to see you get too concentrated in one company, on the other hand, don't pass up free money. So take all that into consideration.

I don't believe the worst will happen to you, you don't need to toss an turn at night. What I am saying is to be prudent and limit your risks. Better to be safe than sorry.

The exception to my advice is if you were working for an emerging company that had huge growth potential. An example would be Microsoft in its early days. You could allow such a stock to become a substantial part of your net worth fully understanding the risks you are taking. The opportunity to potentially make millions of dollars doesn't come along that often. But even then, you want to be diversifying as you go.
A fool and his money are good for business.

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nedsaid
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Re: too much $ in my company of work?

Post by nedsaid » Sun Dec 17, 2017 6:03 pm

Another comment, you are now past 50 and you are a target for potential lay-off. Sad but true. I was laid off at age 55 and employment since then has been spotty.

It reminds me of the Dilbert cartoon where the pointy-haired boss hired a big game hunter to shoot targeted employees with tranquilizer darts. The boss explained that it was quick and humane and that the victims would wake up in the unemployment office!

Having gone to job seminars for the unemployed, I couldn't help but notice how many of them were over 50. Same story, told many times and many ways, long time employees laid off after many years of service. Some landed on their feet with a better job and some did not. For me, finding work took a lot of time, it was more difficult than expected. Hopefully you won't get laid off and hopefully if you do, you will land on your feet. So network, network, and network some more. Polish up that resume and your job skills and hopefully the dreaded lay-off will never happen. Don't wait to get laid off before you start preparing for a job search.
A fool and his money are good for business.

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Watty
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Re: too much $ in my company of work?

Post by Watty » Sun Dec 17, 2017 6:17 pm

wsiddiqi wrote:
Sun Dec 17, 2017 2:16 am
As such its stock is now about 11% of my portfolio. This is in ESPP and RSUs.
Just a nitpick, the mutual funds within the rest of your portfolio likely also own that company's stock too so your actual exposure could be a bit higher.

You are 51 so there is not a lot of time to make up any money that you might lose if that stock tanks. At the very least I would not let your exposure get any higher.

I can't time the market but stocks are at an all time high and that particular stock is likely also doing well. Now would be a good time to take some money off the table. If you put it into index funds and stocks continue to do well then you will do just fine.
wsiddiqi wrote:
Sun Dec 17, 2017 4:10 pm
ESPP - We get 15% off the lowest price at the beginning & end of a 18 month period. So its a good deal.I am able to sell it off the day its deposited in my account at the end of that period. There is usually a lag of 1-2 days when the company purchases the stock and deposits it in our account. This happens every 6 month i.e end of June and end of Dec. so for example on Dec 31 2017, the company will buy 15% off lowest stock price on dec 31 2017 or June 30 2016. Stock will show up by Jan 2-3 2018 and I can sell it right away if I want to.
Other than the couple of days that you have to hold it there is basically zero risk if you sell it as soon as you can. As long as you sell it or donate it right away I would take this out of your calculations.

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Re: too much $ in my company of work?

Post by BigJohn » Sun Dec 17, 2017 6:30 pm

My two cents having managed through a concentrated stock position. First, don’t let the tail wag the dog. In your case the tail is taxes and the dog is the risk you are taking with a concentrated stock position. In your shoes I’d pick a target (say 10% of total stock allocation) and then sell as needed to maintain that target. If you pay more in taxes, that is just the cost of controlling your portfolio risk at an acceptable level. Second, when RSUs vest, sell as quickly as you can. The vesting price is taxable income no matter what you do so no real difference in tax consequences but a significant reduction in risk. I have no experience with a reduced price stock purchase plan so cannot comment on that aspect.

tony_roach
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Re: too much $ in my company of work?

Post by tony_roach » Sun Dec 17, 2017 7:09 pm

Agree with the prior advice to reduce your concentration. I work for a Fortune 50 and I treat the RSU's I receive as a cash bonus and sell immediately (these feed my roth, PA529 and taxable broad based funds). I don't participate in the ESPP even though we get 15% discount on the lowest of the opening or last day closing price of the buy period because they changed the program to a 1 year mandatory hold before selling the stock.

My salary and the stock options I receive is enough concentration for me.

wsiddiqi
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Re: too much $ in my company of work?

Post by wsiddiqi » Sun Dec 17, 2017 9:14 pm

Thanks for the much needed kick. Yes, quite aware that I am a potential layoff target due to my age. I have been at this company too long so its an added risk

was

[quote=nedsaid post_id=3668956 time=1513551817 user_id=41182]
Another comment, you are now past 50 and you are a target for potential lay-off. Sad but true. I was laid off at age 55 and employment since then has been spotty.

It reminds me of the Dilbert cartoon where the pointy-haired boss hired a big game hunter to shoot targeted employees with tranquilizer darts. The boss explained that it was quick and humane and that the victims would wake up in the unemployment office!

Having gone to job seminars for the unemployed, I couldn't help but notice how many of them were over 50. Same story, told many times and many ways, long time employees laid off after many years of service. Some landed on their feet with a better job and some did not. For me, finding work took a lot of time, it was more difficult than expected. Hopefully you won't get laid off and hopefully if you do, you will land on your feet. So network, network, and network some more. Polish up that resume and your job skills and hopefully the dreaded lay-off will never happen. Don't wait to get laid off before you start preparing for a job search.
[/quote]

RudyS
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Re: too much $ in my company of work?

Post by RudyS » Sun Dec 17, 2017 10:11 pm

A little additional perspective: Before retirement, I used to work for megacorp, which was also the second largest employer in my small town. We also had an ESPP that provided stock at 15% off market value. No required holding period. DW and I figured that if things turned bad for megacorp, I could be out of a job, my company stock would drop drastically, and I'd have trouble selling my house. So, seemed a no-brainer to sell the stock as soon as received. Just seemed too risky to have a big percent of my assets in that one equity.

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CaliJim
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Re: too much $ in my company of work?

Post by CaliJim » Sun Dec 17, 2017 10:23 pm

My rules of thumb:
5% max.
Sell all that are subject to Long Term capital gains.
Hold the short term until they go long then sell.
-calijim- | | For more info, click this Wiki

KyleAAA
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Re: too much $ in my company of work?

Post by KyleAAA » Mon Dec 18, 2017 11:51 am

wsiddiqi wrote:
Sun Dec 17, 2017 4:10 pm
Hi folks

thanks for the feedback. Let me clarify a few things

the cash in my holding doesn't include emergency cash. Thats a separate bucket and is not part of my portfolio. This cash money is essentially to pay for upcoming university expenses for the kids. I dont want to take a risk there so its in cash for this need for the next 2 years

RSU is vested so yes its my stock. I dont count unvested RSU as mine until its vested.

ESPP - We get 15% off the lowest price at the beginning & end of a 18 month period. So its a good deal.I am able to sell it off the day its deposited in my account at the end of that period. There is usually a lag of 1-2 days when the company purchases the stock and deposits it in our account. This happens every 6 month i.e end of June and end of Dec. so for example on Dec 31 2017, the company will buy 15% off lowest stock price on dec 31 2017 or June 30 2016. Stock will show up by Jan 2-3 2018 and I can sell it right away if I want to.

I already use these appreciated ESPP stock for charity donation. I've been doing so for last 10 years and will continue to do so.

So it seems that 10% current may be Ok but anything more is too concentrated. BTW, we have unannounced layoffs every year. Pretty much used to it. If it happens, it happens. However the company potentially crashing (a la IBM example) is a real concern so I am thinking I will sell future ESPP purchases to lock in the gain and then diversify to regular allocation via index funds.

BTW I am 50. hoping to hit my 2nd million by 51 as the other post :)
You should always sell all of your company stock immediately. You already have a huge guaranteed annualized gain even after paying regular income tax rates. Don't get greedy and hold on for the lower LTCG rate. Problem solved.

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nedsaid
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Re: too much $ in my company of work?

Post by nedsaid » Wed Dec 20, 2017 8:45 pm

wsiddiqi wrote:
Sun Dec 17, 2017 9:14 pm
Thanks for the much needed kick. Yes, quite aware that I am a potential layoff target due to my age. I have been at this company too long so its an added risk

was
nedsaid wrote:
Sun Dec 17, 2017 6:03 pm
Another comment, you are now past 50 and you are a target for potential lay-off. Sad but true. I was laid off at age 55 and employment since then has been spotty.

It reminds me of the Dilbert cartoon where the pointy-haired boss hired a big game hunter to shoot targeted employees with tranquilizer darts. The boss explained that it was quick and humane and that the victims would wake up in the unemployment office!

Having gone to job seminars for the unemployed, I couldn't help but notice how many of them were over 50. Same story, told many times and many ways, long time employees laid off after many years of service. Some landed on their feet with a better job and some did not. For me, finding work took a lot of time, it was more difficult than expected. Hopefully you won't get laid off and hopefully if you do, you will land on your feet. So network, network, and network some more. Polish up that resume and your job skills and hopefully the dreaded lay-off will never happen. Don't wait to get laid off before you start preparing for a job search.
Hopefully, the lay-off won't ever happen. I don't want you to fear the future or to be negative. What I found is that the job search process has changed dramatically. Employer expectations are much different the last time I went through this in 1999. Be prepared just in case, catch up on the new job search techniques and strategies. What worked twenty years ago doesn't work today except with old school employers.
A fool and his money are good for business.

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Reb Tevye
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Re: too much $ in my company of work?

Post by Reb Tevye » Wed Dec 20, 2017 9:15 pm

Individual stocks: Fast way to get rich. Fast way to get poor. Fast way to do neither.
I know an Enron family. I know a WCOM family. I know a “small-company-you-never-heard-of” family. Sadly, I don’t know an AMZN family.
Many many people have loads of company stock. Like a majority of their money. So it’s not unusual.
Many many Bogleheads absolutely minimize company stock. The reasons are listed in prior posts.

Keep a big enough amount that you won’t regret not having less.
Keep a small enough amount that you won’t regret not having more.
(Did I even say that right?)
Make a rule you will stick to.

I did the math both ways, including and excluding unvested shares.
10-50% when you are young and plowing big money percentage-wise into your accounts sounds ok to me.
5-10% on the day you retire sounds too high to me.

Unless you truly are an insider, act stock-wise as if you know nothing about your company.
"So, what would have been so terrible if I had a small fortune?"

dbr
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Re: too much $ in my company of work?

Post by dbr » Thu Dec 21, 2017 9:26 am

Reb Tevye wrote:
Wed Dec 20, 2017 9:15 pm
Individual stocks: Fast way to get rich. Fast way to get poor. Fast way to do neither.
I know an Enron family. I know a WCOM family. I know a “small-company-you-never-heard-of” family. Sadly, I don’t know an AMZN family.
Many many people have loads of company stock. Like a majority of their money. So it’s not unusual.
Many many Bogleheads absolutely minimize company stock. The reasons are listed in prior posts.

Keep a big enough amount that you won’t regret not having less.
Keep a small enough amount that you won’t regret not having more.
(Did I even say that right?)
Make a rule you will stick to.

I did the math both ways, including and excluding unvested shares.
10-50% when you are young and plowing big money percentage-wise into your accounts sounds ok to me.
5-10% on the day you retire sounds too high to me.

Unless you truly are an insider, act stock-wise as if you know nothing about your company.
Many, many employees of my former employer have comfortably retired on piles of company stock accumulated over the years. While I am happy for them, the truth is they have no idea how one single unlucky turn would destroy them.

BlackStrat
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Re: too much $ in my company of work?

Post by BlackStrat » Thu Dec 21, 2017 9:33 am

I'm in the same boat. I opened up a DAF this year and matched what I contributed to it in appreciated stock by selling an equal amount of shares to offset the deduction and allow me to begin to minimize my holdings in this one company.

I also earmarked the cash I'd have normally donated to charity and instead invested it in my 3-fund portfolio to diversify according to my pre-defined AA.

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randomizer
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Re: too much $ in my company of work?

Post by randomizer » Thu Dec 21, 2017 9:53 am

I wouldn't hold 10% of my stock holdings in company stock unless my company was 10% of the total market cap, and it ain't. I'm happy to accept the market returns, because I only want to accept the market risk.
75:25 — HODL the course!

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Re: too much $ in my company of work?

Post by Valuethinker » Thu Dec 21, 2017 10:38 am

nedsaid wrote:
Wed Dec 20, 2017 8:45 pm
wsiddiqi wrote:
Sun Dec 17, 2017 9:14 pm
Thanks for the much needed kick. Yes, quite aware that I am a potential layoff target due to my age. I have been at this company too long so its an added risk

was
nedsaid wrote:
Sun Dec 17, 2017 6:03 pm
Another comment, you are now past 50 and you are a target for potential lay-off. Sad but true. I was laid off at age 55 and employment since then has been spotty.

It reminds me of the Dilbert cartoon where the pointy-haired boss hired a big game hunter to shoot targeted employees with tranquilizer darts. The boss explained that it was quick and humane and that the victims would wake up in the unemployment office!

Having gone to job seminars for the unemployed, I couldn't help but notice how many of them were over 50. Same story, told many times and many ways, long time employees laid off after many years of service. Some landed on their feet with a better job and some did not. For me, finding work took a lot of time, it was more difficult than expected. Hopefully you won't get laid off and hopefully if you do, you will land on your feet. So network, network, and network some more. Polish up that resume and your job skills and hopefully the dreaded lay-off will never happen. Don't wait to get laid off before you start preparing for a job search.
Hopefully, the lay-off won't ever happen. I don't want you to fear the future or to be negative. What I found is that the job search process has changed dramatically. Employer expectations are much different the last time I went through this in 1999. Be prepared just in case, catch up on the new job search techniques and strategies. What worked twenty years ago doesn't work today except with old school employers.
Interestingly there was a thing this week that employers were using birth year on Facebook etc. to screen out who sees their job ads. Illegal (under US law) but quite possible, algorithmically, it appears.

I heartily endorse what is said about the world has changed. Also we have all changed "we were the future, once"-- none of us is the same age that we were in 1999 ;-).

We will all be 50-somethings, and from what I have heard, finding another job is (relatively) very difficult at that age, but for 60-somethings, it is almost impossible.

Older workers are viewed as:

- inflexible, unwilling to learn new things (in fact that is individual specific)
- negative and critical (again, see above)
- less physically able to work hard (may be true, but conversely they can also be more efficient))
- at greater risk of health issues and absences (true - but then, the same logic could be used to discriminate against women of childbearing age or some of the super triathlon types who are always wrecking themselves in extreme sports; also older workers don't think you can show up with a hangover to work 3 mornings a week*)
- harder to mold into the company culture & image (probably true)

The main problem seems to be that it is believed to be bad for the company's self-image and projection to employees as young and dynamic. We live in a world where grey haired wisdom is not valued.

It's amazing how the world treats you as an older person, long before you think of yourself as such.

Social and communication norms have also changed. There is far less emphasis on a well-structured sentence, more use of short forms, messaging etc. I do sometimes find colleagues seem happier communicating by Messenger w LOLZ etc, than by actually speaking to colleagues.

* cliche/ stereotype warnings re attitudes towards Millennials. I am always struck at how similar they are to me, at that age-- we were the future, once, too ;-). But there are some differences, and the way Millennials work is different than Gen X or the Boomers. Point is we've learned we can't be hungover at work (most of the time ;-)).

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