Taste the difference

letspretendforaminute wrote: »

My reasoning is that many people invest in their own companies via share saver schemes and build substantial equity/risk in one stock.

They do indeed. However, "my rationale for investing is that a lot of people put most/all their eggs in one basket and invest a large portion of their wealth in their own employer and sometimes they get rich from it" is not a sound reason to do it.

Employees of Lloyds, RBS and dare I say Tesco (share price 386p in 2013, 186p today) got mightily stung when their pile of "free money" went pop, even though the companies are still running today and the people might still have their jobs. Ditto any with stock in Enron, Woolworths, Bradford & Bingley, Northern Rock, HMV etc ; the stock doesn't exist now.

The trick with employer shares is that the can often be a pretty much one way bet to acquire them - e.g. discounted sharesave scheme, free matching shares with tax perks etc, which can be very lucrative - BUT at some point the shares become yours free and clear and able to be sold -the special deal you got when buying them is no longer in effect, and the risks you take are the exact same as everyone else in the stock market.

Really at that point you should take your money and invest in a broader basket of stocks that can still make great returns over the long term but won't have the potential risk of going up or down by 5% per day, or dropping 50% or 80% or 100% in a really bad year.

So, some people invest in sharesave shares and keep them all, but that's not the smartest move. Doing the £250pm or whatever via a subsidised or share option scheme is fine as an alternative to buying two pints a day down your local. However, once it's matured with a positive result, that's when you've "beaten the market" thanks to a useful scheme, and you have several thousands of pounds in your hand to do what you like with, including investing wisely. Investing wisely doesn't usually mean keep sticking it into the company you rely on for employment and are already investing in through a new sharesave scheme, because if times are tough they could be triply tough for you as your existing shares and new shares and job prospects all crash together. Some people don't heed the warnings and get very unlucky, even though there are others that get very lucky.

You haven't actually mentioned if you are a Sainsbury employee - I assumed that but you don't actually say you are - just someone who had "played the stock market" and got lucky with the positive price movements of SBRY in his pension. Are you just suggesting keeping buying that company at £250 a month just because some people with discounted sharesave schemes also do £250pm so it must be fine? That seems like you misunderstand the fact that they get to buy them cheap or at reduced risk using employer-sponsored schemes, not available to the rest of us.

Theoretically, this could be £300k in twenty years time for what is beer money?!!

If you presume that Sainsbury might just perform the same as any average multi billion pound blue chip company over the next 20 years, it could have a long term compound return of, say, 7% a year. Compounded for 20 years, each pound turns into £3.90. Not bad, but to get £300k out at that rate of return you might need to put £77k in, which is only "beer money" if you buy your beer from an expensive pub and order it in 3000-gallon mugs.

Thoughts please?

You were talking about maybe getting a nice big £300k pot, not bad for beer money. But the beer money is what you started with. What you are implying you have now is something like £8750 in the stock? £8750 is not beer money it's a good chunk of cash that can buy very meaningful things. If you assess your assets in terms of what they once cost you to get rather than what cash they could be exchanged for today - you will misprice the risks you take and over- or under-value the returns you get.