Sharesave n00b

The_Angry_Jock

Afternoon,

Last year my employer started a sharesave scheme, I left it because I don't fully understand it and didn't think (at the time) it was good value. It's now opened again and this time around I'm considering it however I need to get some things straight in my head first as I've never dealt with shares.

The deal:

I can contribute between £5 - £250 for 36 months, at 36 months I then have 6 months to decide if I want to take the shares or cash (with virtually no interest).

The current share price is the lowest it's been since the the crash in 2008, I assume because of the double dip being announced. Historically it looks like it averages between 30 - 80% higher.

I get 12% off the face value of the shares based on the price last wednesday.

I work for a very large (30,000+ employees) American company that seems to be on a mission to be the largest in the field.

My thoughts:

Now looking at the charts and whatnot I think it looks like a winner, is there anything I should specifically be looking at?

I could pay money in for 3 years, at that time I'd probably be looking to move house so at least I'd have some saving there.

If I decide to buy, is it expensive / difficult to sell shares?

HELP

Thoughts welcome :j

dtsazza

Sharesave schemes are almost always very good value, and this looks like little exception.

The only potential downside is the difference between a savings account interest, and the cash interest you get from sharesave. Which with today's relatively low rates, are all likely to be small.

I wouldn't look at historical figures of the share price as a prediction of the future, as the future is not likely to be a mirror image of the past. However, if you're getting a 12% discount off the shares already, then even if the price stays the same, you're getting a 13.6% "increase" in value due to that.

Shares are generally quite cheap to sell; there are many brokers that let you transact for £10-15, for example, and you can get less than that if you shop around. And based on the description of your company, it sounds like it would be no problem at all to sell them (in that there should be plenty of buyers with little "spread" from the market price).


At the end of the day, look at it like a lottery ticket where you get your money back (and some token interest!) if you lose. You could make some very good returns if the shares do well; if not, you can just walk away with your cash.

opinions4u

Heads you win. Tails you get your money back.

Are the shares traded in $ or £?

cashbackproblems

If its such a big company the chances of it going down from low levels are small and even if it does you can just hold for a few extra years as you wont have alot of money tied up.

My scheme is even better, for every 1 share you get another free up to £200p/m, and you just have to hold for 1 year before selling. The shares are held by the company administration but every year i transfer them into my own account with iii free of charge. Then selling them is only one off £15

The_Angry_Jock

opinions4u wrote: »

Heads you win. Tails you get your money back.

Are the shares traded in $ or £?

I've been given the price in £ but I'm sure they're traded in $.

I'd need to be aware of exchange rates aswell wouldn't I?

The_Angry_Jock

dtsazza wrote: »

I wouldn't look at historical figures of the share price as a prediction of the future, as the future is not likely to be a mirror image of the past. However, if you're getting a 12% discount off the shares already, then even if the price stays the same, you're getting a 13.6% "increase" in value due to that.

I was trying to get my head around this yesterday, it's still way more than I'd get from a saving account.

Just trying to make sure I get it right before I tie myself in for 3 years :eek:

gadgetmind

The_Angry_Jock wrote: »

Just trying to make sure I get it right before I tie myself in for 3 years :eek:

As others have said, Share Save is pretty much a no-brainer. You can't lose, could win a whole load, and they are also very tax efficient.

I had to talk some people here into using these schemes (over a beer, as a mate, no company advice!) and three years later they have just got enough out to put down a decent deposit on a house.

They don't all work this well, but even when they do badly, you still get your money back with interest.

opinions4u

The_Angry_Jock wrote: »

I've been given the price in £ but I'm sure they're traded in $.

I'd need to be aware of exchange rates aswell wouldn't I?

Absolutely. Exchange rates will add an additional layer of cost to any trade.

They can also add an extra dynamic to risk v reward which the Sharesave scheme shelters you from the risk until the point in time when you exercise your option to buy shares.

If it's a big firm the shares are almost certainly easily tradeable. Ask longer standing employees if they've ever had any problems.

zxspeccy

As has been said in previous posts this is a no brainer, go for it.

My company offers the scheme, but with a 10% off share price, to their credit they do pay about 2% pa gross interest over the 3, 5 or 7 year plan.

However you do need to be wary of share going down as well as up. The scheme I have just come out of (3 year scheme) the shares lost 42% of their value over the three years so took the cash and interest out upon maturity. So in this case it scheme worked as a long term regular savings plan in the end.

On a more positive point previous schemes I have been on with the company (I’ve been with them for 25 years) have netted me between £7k and £12K profit every three years. A friend asked me about Sharesave a few years ago as his company were starting the scheme. I advised him to do it and over three years the shares went from 15p to 76p, he made about £1500 profit and was very happy (£10 a month). I did point out that if he could have afforded the max (£250 per month) he would have made nearly £40K profit, which wiped the smile of his face as he could have afforded that but was still a little wary despite what I told him.

When the scheme matures and you are no expert on shares then you need to either take your cash out if the shares have dropped to lower than the option price. Or take the shares (assuming that the market price is higher then the option price) and sell then straight away, in which case you will get back all your original investment and the profit from the shares. The third option is just to take the shares and sell them on the open market when you feel the price is right, however once you have the shares you run the risk of market prices falling. If the share price then falls below the option price then you will be sitting on a loss. However you do have six months from maturity to decide which will give you time to make an informed decision.

Also most scheme will allow you to cancel and withdraw all you contributions without penalty, however once out of the scheme you can’t rejoin and will have to wait for a new scheme to be announced. Some even allow payment holidays so if money is tight one months you can defer.

gadgetmind

You also often have the option to move up to a S&S ISA worth of shares directly to an ISA and either hold or flog in there to avoid capital gains tax.