SmartMoney Podcast: ‘Should I Invest or Pay Down My Student Loans?’
BY LIZ WESTON AND SEAN PYLES
Welcome to NerdWallet’s SmartMoney podcast, where we answer your real-world money questions — in 15 minutes or less. Check out this episode on any of these platforms: APPLE PODCASTS SPOTIFY SOUNDCLOUD This week’s question is from Kelly in Sacramento. She asks: “My tech company offers stock options, and there is so much hoopla over them in the Bay Area. I don’t know if I should even exercise [the options] given my $90,000-plus student debt, but at the same time have FOMO.” OUR TAKE We get the FOMO (fear of missing out)! You don’t want to miss an opportunity, but you also don’t want to have student loans for the rest of your natural life. This is all about balancing financial priorities. Companies offer stock options as a way to attract, reward and retain employees. There are a lot of different ways stock options can be structured, but in general the company is giving workers the right to buy a certain amount of stock at a discounted price. The hope is that that stock will then rise in price, so the employee can sell the shares and pocket the difference. Employee stock options come as a grant that limits how much stock you can buy, and a vesting schedule that gives you ownership of that stock over time. This is an incentive to get you to stick around. You can buy the stock (also known as “exercising the options”) and hang on to it, but that could mean tying up a lot of money. You also can wait to buy the stock until you’re ready to sell it — when the company goes public, for example. You don’t have to lock your money up for months or years waiting for something that might not happen. It’s important to keep in mind that there are no guarantees. The stock price could rise in value a lot or a little, or it could fall and make your options worthless. Also, you don’t want too much of your investment portfolio to be tied up in the same company that employs you. If your company goes belly up, you could lose your job and the money you invested.
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