Personal Finance (Not Investing) • Proposed update to Prioritizing Investments wiki page

I didn’t reply before, but i disagree with some of the priorities.

Disagree ESPP is high priority. The risk of stock losing value is really compounded by the possibility of job loss. It is very possible for stock price to plummet and lose one’s job. It happened to many at former employer during 20008/2009. I move it down to lo medium

Thanks very much for the review. My understanding of how an ESPP typically works is: (1) employee funds the ESPP with payroll deductions during the period [eg. 6 mo], (2) at the end of the period, the money is used to buy shares of company stock at a 15% discount from the lower of the share price at the beginning or end of the period, and (3) those shares immediately become property of the employee, and can be held or sold on the open market. Therefore, the employee can (and usually should) sell the shares immediately for a ~17.6% (=1/0.85) profit. If the stock price is falling, then it will be purchased at a discount from the price at the end of the period, so the employee will still make a profit. Maybe there are a few business days while the transaction settles where the share price could fall, but the price would have to fall more than 15% during this time for it to not be worth it. I view an ESPP as part of your compensation, which should be taken by almost everyone.

Maybe the ESPP's I'm familiar with are not typical? If they usually operate differently than this, please let me know. Maybe you are referring to some employees holding onto their company stock, maybe trying to turn the gains from short-term to long-term? That adds a lot of risk, and is not what I would suggest as a baseline. But that's not what the wiki is saying.

I also think the emergency fund should not be split and should be high priority. It will need to grow as expenses expand.

I agree it should grow (or shrink) as expenses change. But are you saying you think someone should save 3-6 months of current expenses in cash before getting an employer match or paying down credit card debt?

I think mortgage should be higher and can be thought of as part of emergency fund. It is a lot easier during unemployment if house is paid off. Yes, I know most of not all but me enjoy using debt at a very low rate but it is a liability and important to keep in mind.

There is a spectrum of debt aversion and you seem to be at one end of it, which is fine. (Personally, I wouldn't say I "enjoy" debt at a low rate, except if it's significantly less than what risk-free investments are paying after taxes, in which case I'll take out as much as I can get and park the cash in treasury bonds.) I think the page should be written for a more typical debt tolerance, and the page does allow the priorities to be adjusted to suit personal preference.

I don't agree that paying down a mortgage is a better risk reduction than investing the money. Unless the mortgage is completely paid off (or recast, which many lenders don't allow), you still owe the same payment each month even if you are paying it down ahead of schedule. Not until the mortgage is completely paid off does your monthly payment drop. On the other hand, money in a taxable account (emergency fund or otherwise) can be tapped at any time to get you through a period of unemployment.

P.s. why is. Paying off credit card debt ina section of Investing prioritizing. I would think it is a prerequisite.

There was a consensus during the last review (and almost every other "investing priority" lists I've seen, some are linked) that getting an employer match is more important than paying down credit card debt, and I agree with that. For the reasons I gave, I would also include an ESPP, assuming it works the way I think.

As you see my disagrees, I think protecting oneself is a priority. I have never been a high earner like others on the board.
I never had credit card debt that was not paid off each month except when planned for a vacation and it was paid off in 2 months.
So I have a hard time seeing reduction of consumer debt as part of investing. It is a precursor to investing. It is an emergency if in thousands or tens of thousands (I agree with Dave Ramsey).

I would not forego 401k. But I would not max. Owning my own home has given me a lot of security during turbulent times. A major expense was eliminated. My employer merged with a bigger company and after that there was round after round of layoffs. Then outsourcing from India.


As for ESPP, not all plans are the same. My employer’s plan changed multiple times. There was 6 months or a year waiting to sell.
I stopped as there were other avenues of investment.

Statistics: Posted by SmileyFace — Fri Aug 16, 2024 8:28 pm — Replies 14 — Views 817