Sunday Question Time – ShareSave schemes, what do you do?
Today I wanted to talk about ShareSave schemes, or ShareSave plans as they are often known, which are a great way to save up cash and lock it away for a few years, and potentially get a great return on your investment.
ShareSave plan 101
For those of you who are unaware what a ShareSave plan is, it generally works like this:
- You get to buy shares in the company you are working for at a discount price
- You make monthly contributions over a 3 or 5 year period into a savings account to buy the shares, and can only access the shares at the end of said period
- When you can access the shares after 3/5 years, you don’t even have to buy them. So if the share price has dropped below what you “paid” for them, you don’t even have to buy them, and get your money back.
- If the shares have gone up, or even stayed at the same price as they were when you “bought” them, you can turn a profit because you were buying at a discount price in the first place. So you can keep the shares then either sell them for a profit, or decide to keep them.
- You can only invest up to a set amount and that amount does not renew each year until that particular plan matures. So for example if the limit per year is £3,600 (£300 per month), and in year 1 I put in £150 per month, and year 2 start another plan and I put in £150 per month, then in year 3 I cannot start up another plan as I am maxed out. In Year 4, I could start another plan with a max of £150 per month again, and so on.
This is obviously a great scheme because if the price drops you can just get your money back, and the only real cost is the opportunity cost of having your money tied up for 3 or 5 years, which could have been earning interest in a savings account or appreciating in other assets. Conversely, it could have also been losing you money in those other assets as well. So all in all, whether you should participate in such as scheme if your company runs is a total no brainer.
How much do you save?
The question I would like to throw out there today then dear readers, to gain your collective internet wisdom, is how much would you, or do you save in your company ShareSave scheme? I’ll give you a brief run down of my thoughts and position to get things started:
- My monthly take home pay is around £2600, so I am saving the max I am allowed which is £300 per month into my companies share save plan, and I’ve chosen the 3 year plan. This doesn’t seem particularly aggressive and I am happy with that. Not least because I can’t contemplate the thought of being at my company much longer than 3 years 🙂 (needless to say if you leave the company, you cannot buy the shares any more and you just get your money back!)
- The main conundrum we have is Mrs TFS’s company do a similar scheme (documents snippet pictured above) but for some reason you can save £500 a month into it and her take home is only £1200 (we have a joint account and split all costs down the middle so the actual take home is fairly irrelevant here, but even so, another £500 coming out of the remaining pot of £3500 is still quite a big chunk)
- We can buy the shares for 20% of the current price, which is £4.46, compared to the trading price today of £5.54 – seems like a great deal, huh?
- However £500 over 3 years is quite a lot of money to be tied up in one company, £18,000 to be precise.
- Would we be shooting ourselves in the foot by tying all that money up, remaining totally undiversified in our investments?
- The stock looks to have risen above current levels only 4 times in history (see graph here) and each time looks fairly brief. However there is nothing to say it may not go on a massive tear over the next 3 years.
I think the two options we have are something like this:
- We could be aggressive and go in at the maximum pay in, and be sitting on a lovely wad of cash if the stock price rises, or even if it stays around the same price. This seems rather risky considering the stock being at a high price in comparison to history.
- We could stagger our entry into the plan over the next few years, as I kinda explained above in the last point of the ShareSave Plan 101 section, and maybe do £200 a month for the first year, then see what the stock price does, and maybe then do £150/£150 in year 2/3, or even £200/£100. This will work in our favour if the stock drops as we can reset the share price in the second and/or third years, and hopefully still come out with a profit. (Thanks to ermine for introducing me to this strategy!)
Note: I don’t like the idea of the 5 year plans as the likelihood of staying at any company nowadays for that long seems fairly slim, so with the 3 year plans you have more change of your plan actually reaching maturity before leaving.
What do think readers!? Would you go in all guns blazing with the highest allocation of £500 a month or would you go for option two and spread the risk of the share price dropping somewhat? Or is there a third option that the financial wizards out there know about that I have not thought of?! I’d like to hear about other ShareSave plans as well as I didn’t realise the rules can be slightly different between companies, what have your experiences, positive or negative, been?
Thanks in advance, I’m looking forward to the discussions in the comments section already 🙂