Share option or index fund investing

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Loki1974

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Hi all

Just looking for members opinions. I work for an irish financial institution and have the option to participate in a share option scheme. the scheme gives me the option to invest money up to 500 euro a month and after 3 years I can decide wether to buy shares with my savings at the June 2020 share price. If the share price in 3 years is higher than in June 2020 I will make a gain and if lower I just keep my savings. I plan to invest our Children allowance to help towards third level fees in the future. Essentially would you invest in a companies share option scheme or invest in an index fund . All advices appreciated
 
Conventional wisdom says not to invest in the company you work for. Reason being if company goes down, you might get laid off and the share price would likely tank, so a double whammy.

I have share options in my company but I didn't have to front any money. We can buy and sell in the one transaction in 3 years time, meaning I don't need to have the savings to exercise the option. I pay cost to buy out of the selling amount and then pay tax on the profit. If the share price has gone down, I do nothing, share option expires.
Are you saying you need to hand over E500 per month now, locking it in for three years? Personally I wouldn't go for that. Do you get a favourable strike price (the price at which you can buy them)?

Index fund investment isn't straightforward either. Taxes are confusing for a start, especially for UCIT funds. I've seen suggestion of paying down mortgage for guaranteed return and then by time you need the college fund your mortgage would be paid earlier and you'd use that amount for the college fund.
 
Thanks so much Boyd, the monthly limit is €500 but I plan to only invest €140. I need to look into whether I can buy shares now at a reduced price but my understanding is that I can only buy at the market price but I won’t suffer any losses if share price drops . I agree with you re overpaying mortgage but we have a decent rate of 2.4 % and are overpaying to max allowed . Whilst having your losses covered in the event that the stock price drops is great , I feel it is still risky buying one share rather than a share index . Thanks again for you views .
 
Very strange advice.

This sounds like a Save As You Earn scheme (‘SAYE’). I hate the term ‘no brainer’, but these are usually a no brainer.

You commit to an amount per month, capped at €500 for a minimum of three years. You can get interest of up to two months’ contributions on a three year savings plan (with no DIRT). The exercise price can be up to 25% below the market price at grant.

And there’s no income tax on any gain, just USC and PRSI. And if the share price has tanked, you can just take your money back.

The ‘not investing in your employer’ stuff is completely irrelevant. SAYEs are a free option. You’re not buying one share! You’re setting aside an amount of money for 3 years, after which, if the share price has gone up you can say “I’ll have that free money please”, and if it’s gone down you can say “I’ll have my money back please”. It’s a free bet.
 
Gordon Gekko said:
Very strange advice.

This sounds like a Save As You Earn scheme (‘SAYE’). I hate the term ‘no brainer’, but these are usually a no brainer.

You commit to an amount per month, capped at €500 for a minimum of three years. You can get interest of up to two months’ contributions on a three year savings plan (with no DIRT). The exercise price can be up to 25% below the market price at grant.

And there’s no income tax on any gain, just USC and PRSI. And if the share price has tanked, you can just take your money back.

The ‘not investing in your employer’ stuff is completely irrelevant. SAYEs are a free option. You’re not buying one share! You’re setting aside an amount of money for 3 years, after which, if the share price has gone up you can say “I’ll have that free money please”, and if it’s gone down you can say “I’ll have my money back please”. It’s a free bet.
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That’s how I’d look at it too. If you have nothing else you need the money for I’d do it given returns on bank accounts. If the shares have gone up a bit happy days. I assume that you get your money back if you leave before the 3 years are up.
 
DeeKie said:
I assume that you get your money back if you leave before the 3 years are up.
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That's what I was wondering. Rereading the OP, it seems I missed the part where he said he gets the savings back if shares go down and he doesn't exercise the option. That's why I was trying to get more information, as it seems different to my share options scheme. If capital is guaranteed then yes IMO it's likely worth taking the gamble it will go up, apologies for the confusion. It's certainly easier than index funds anyway.

As I mentioned, do you get a favourable strike price (vs current share price)? Again, for mine, it was a once off thing so the strike price is fixed, meaning it's easy to calculate any potential profit. How does your strike price work if you're investing monthly? Does the strike price fluctuate per month or has it been set at the outset?

(Edit) reading up on [broken link removed] clearly states capital is returned, go for it!
 
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Loki1974 said:
Hi all

Just looking for members opinions. I work for an irish financial institution and have the option to participate in a share option scheme. the scheme gives me the option to invest money up to 500 euro a month and after 3 years I can decide wether to buy shares with my savings at the June 2020 share price. If the share price in 3 years is higher than in June 2020 I will make a gain and if lower I just keep my savings. I plan to invest our Children allowance to help towards third level fees in the future. Essentially would you invest in a companies share option scheme or invest in an index fund . All advices appreciated
Click to expand...

This isn't really investing in the company you work for (I agree with the idea of not being over exposed to your employer). This is a free bet. I would max the contribution you can afford to set aside for 3 years. The alternatives are (a) saving at 0%, (b) paying off mortgage (returning 2% or whatever your mortgage rate is) or (c) investing in equities. The tax advantage of the gains in this scheme combined with the lack of down side makes it a lot better than an index fund in my opinion.
 
Thanks all for your views , which are appreciated . I found out that the exercise price is 20% less than the market share price so it even makes more sense to save with the SAYE scheme . Thanks again
 
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