Is sharesave a good idea?

tbourner

I've never done anything in shares before, but my company has the lowest share price for a long time at the moment, mostly because of the general financial situation but also because management misjudged 2011/2012 projections and now knows we're going to underperform. So a few people have said you should put as much as you possibly can into sharesave this year, as in 3 years time it's likely to be a much higher share price.

My problem is I could really do with the pay rise I'm due, as my debts need paying off. I have some cards and OD that will be paid off within 18 months (would be less if I used my pay rise) and a few loans that are due to finish in 3 years (again, could maybe pay off earlier if I pay my OD and save up). Obviously if all goes well though, I could sharesave £50 a month, if shares go up 20% I could make about £4k in 3 years!! Is it really win-win in that I can take that £1800 out if all goes pear shaped - is that worse than paying off my (6.9% and 11.9%) loans over the 3 years?

CLAPTON

50 per month over 36 months is 1800

if it goes up 20% you make 360 ; if it goes up 30% you make 480

pay off the debts and overdraft
get debt free
build up some saving with immediate access to cover emergencies and so you never ever need to get in debt agian
then do the next share save

chris_m

It all depends on the actual setup of your sharesave scheme. However, as an indicator, my company operates three and 5 year schemes where you put in what you want - to a maximum of £250/month for ALL schemes (including past years).

If you run it to maturity, a bonus is added to the total at the end - different amounts for the two durations and also different from scheme to scheme, so some years schemes would give, say 2 months bonus, others only one. At that point you decided whether to take the money (including bonus), or use part or all of it to buy shares at the option price, which you can then sell immediately or hold as you choose.

If you choose to stop it early, you get just your money back if it's in the first year, money plus "some" interest if it's after the first year. However, the important thing looking at your questions are that you do get ALL your money back.

One thing to consider if you stop a scheme early - the law was changed a couple of years ago such that the amount you are allowed to save is still fixed for the duration of the original scheme. It used to be a simple max £250/month so if a new scheme started with better terms (lower option price, better bonus, etc) you could cancel and replace with the new scheme. Now, that is not allowed. I currently have the maximum £250 going into three schemes so I cannot start another until one of the other reaches (or would reach if I stopped it early) maturity.

I don't plan on stopping any of them early though, not with the option prices and the current share price and trend - it could make anything up to three years difference on my early retirement plans, so I'm hanging in there !!!

How it compares with paying off your loans is something that only you can decide, though.

tbourner

Sorry I meant $20. It was just over $20 3 years ago, and my share option price will be $8.25, so id make quite a bit if it does go up to that.

spikyone

tbourner wrote: »

It was just over $20 3 years ago ... so id make quite a bit if it does go up to that.

I'm afraid that what the shares were worth three years ago is completely irrelevant. The past performance of the shares is no indication of their future value.
And as you say yourself:

tbourner wrote: »

My problem is I could really do with the pay rise I'm due, as my debts need paying off

You have to offset potential gains against the interest you're paying and in a worst-case scenario, your potential gain is zero. According to your signature, you have £25k in debt. I'm with CLAPTON here - I'd be doing everything to clear that ASAP.

tbourner

My calculations suggest that adding £50 to my debt payments will shave 3 months off the debt free date, this just doesn't sound like much for the gamble, especially as the gamble definitely won't lose me money, only interest.

And I know share prices fluctuate and may go down as well as up etc., just saying it's a strong company and it's only the current climate as well as something that literally is only happening this year and won't be the case next year which is bringing it low.

Ilya_Ilyich

Whether or not it's a good idea pretty much depends on whether the options are sold at a discount (usually in these schemes they're sold at a 20% discount) and the interest rate on your loans.

If we assume the share price stays constant and the discount is 20% then if my calculations are correct you're better off with the sharesave as long as your debt is at less than 15.89%.

tbourner

I think it's 15% discount we get.
//edit: so my debts need to average 11.45% or less to be worthwhile?

These are my interest rates:

Unsecured Debts
Description....................Debt......Monthly...APR
NatWest Loan...................9090......267.......6.9
LloydsTSB Loan.................5496......206.......11.5
Overdraft......................2950......53........12.3
Barclaycard....................2137......50........15.9
GE Money Loan..................1762......50........22.25
Total unsecured debts..........21435.....626.......-

Barclaycard is on 0% until August, overpaying by double on GE Money (plan to pay it off when bank account level reaches an adequate figure) therefore paying all my additional to my OD at the moment.

Ilya_Ilyich

Looks like it, yep - which would suggest you're better off using the money on debt. Bear in mind that assumes the share price doesn't move in 3 years though - if you're confident in your company and believe the share price will increase in that time it makes the sharesave a much more attractive proposition.

spikyone

tbourner wrote: »

Description....................Debt......Monthly...APR
Overdraft......................2950......53....... .12.3 Barclaycard....................2137......50........15.9
GE Money Loan..................1762......50........22.25

Barclaycard is on 0% until August, overpaying by double on GE Money (plan to pay it off when bank account level reaches an adequate figure) therefore paying all my additional to my OD at the moment.

Ideally you would want to clear the Barclaycard and GE Loan ASAP as they'll absolutely kill you. Barclaycard may be 0% until August, but paying £50 a month to it won't clear it before then. And rather than clearing your 12.3% overdraft you should be clearing your 22.25% loan!

tbourner wrote: »

it's a strong company and it's only the current climate as well as something that literally is only happening this year and won't be the case next year which is bringing it low.

First, there's nothing to say the "climate" will be any better by the time your scheme matures. Secondly, if management "misjudged projections" this year, there's nothing to stop them doing it next year. Or the year after. Unless the share price is zero, it could go down, so any calculations based on the share price staying constant are meaningless - you could end up making absolutely nothing on your sharesave scheme.

With £25k debt, particularly with almost £4k at 15-22%, I'm even more certain that you should be clearing this.

tbourner

spikyone wrote: »

Ideally you would want to clear the Barclaycard and GE Loan ASAP as they'll absolutely kill you. Barclaycard may be 0% until August, but paying £50 a month to it won't clear it before then. And rather than clearing your 12.3% overdraft you should be clearing your 22.25% loan!

I'm hoping I'll get a 0% offer from my Lloyds CC which is empty at the moment, so I can switch, if not I'll stop paying off my OD and pay the whole additional £260 odd onto the Barclaycard when the 0% ends, I won't just carry on paying the minimum obviously!! The GE Loan is a stitch, you can only overpay by double (which I am), unless you can pay it all off (which I aim to do).

spikyone wrote: »

First, there's nothing to say the "climate" will be any better by the time your scheme matures. Secondly, if management "misjudged projections" this year, there's nothing to stop them doing it next year. Or the year after. Unless the share price is zero, it could go down, so any calculations based on the share price staying constant are meaningless - you could end up making absolutely nothing on your sharesave scheme.

It just seems to me to be a win-win, or at least a win-don't_lose. The biggest risk of going for it is losing out on maybe a couple of months from clearing my debt, whereas the potential gains are thousands of pounds!!!
I would imagine if the company get in any more trouble than this I won't be worrying about shares, I'll be looking for a job.