Collecting Company Stock


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Collecting Company Stock


Many publicly listed companies offer employees shares, but what are you supposed to do with all that equity?

Many share purchase plans restrict the ability to sell or transfer shares, particularly when the company makes matching contributions.

There may be no better employee benefit than the company stock plan. You buy some stock with each paycheque and then in many cases your employer purchases some stock for you too. It’s free money and if your company does well, those shares will grow in value.

It’s a great way to save, but there is a catch: By the time you retire much of your net worth could be tied up in one place. So what’s an investor to do? We asked Jack Courtney, Vice-President, Private Client Planning at Investors Group that question, and here’s his advice.

Jack Courtney
B.A., LL.B., CFP, TEP, is Vice-President, Private Client Planning at Investors Group

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    Take a disciplined approach to asset allocation

    Diversification is always key when it comes to managing the risks of investing, but it’s of even greater importance when your portfolio is concentrated in the shares of a company that also writes your paycheque. To create a more diversified portfolio, you may have to sell some of that stock, says Courtney. Work with your advisor to develop an asset allocation strategy that takes into account your personal goals, tolerance for risk and all of your financial assets including any company share purchase plan and pension.

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    Review the rules of your plan

    Many share purchase plans place restrictions on the ability to sell or transfer shares, particularly when the company makes matching contributions. There may be a “vesting period” in which shares cannot be sold or transferred without a forfeiture of the shares purchased by the company. It is important to know how many shares can be sold without penalty before implementing your asset allocation strategy.

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    Understand the pros and cons of holding shares in an RRSP

    Some share purchase plans allow stock to be held in an RRSP, but is this always the best option? Holding shares within an RRSP is usually only appropriate if the money is intended to fund your retirement. You will receive a tax deduction when you contribute shares to an RRSP and you can rebalance your portfolio without generating an immediate tax liability. However, when you hold shares within an RRSP you’ll lose access to the preferential tax treatment that applies to capital gains and dividends. This will be of particular importance if the shares are intended to fund a large purchase or a shorter-term goal.

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    Private company shares may qualify for the lifetime capital gains exemption

    If the shares of your employer are not listed on a public stock exchange, you may be able to utilize your $800,000 lifetime capital gains exemption. The exemption applies to capital gains realized on shares of “Qualifying Small Business Corporation Shares.” Don’t let the word “small” fool you, as the exemption can be available on the shares of very large private corporations.

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    Don’t forget about it

    Company share plans are easy to forget about. Money’s taken off every paycheque and shares are purchased automatically. Before you know it, you’ve built up a sizable portfolio. As with any investment, it’s important to review your company stock purchases on at least an annual basis. Your advisor, or one of our Securities Specialists, can determine just how much risk you’re taking on by having a concentrated position in one security.

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