These plans come with various names and styles but the crux of them all is that your employer is giving you the option to purchase or otherwise own shares in the company and participate in the growth of the stock. The intention behind this is to put employees in the drivers’ seat; they are motivated to enhance their own finances by being a dedicated, diligent employee and as a result the company’s stock price goes up. Of course, as a secondary benefit, if you are comparing two jobs and one comes with an ownership benefit, you might be inclined to choose that position over another that has no such benefits. Regardless, these plans are designed to put you, the employee, in a position that motivates you to thrive in your role with the outcome to generate return for the company and you over your career.

No matter how this plan is delivered to you, the obvious benefits like employer matching, stock bonuses, or deferred tax are all meant to keep you invested for the long haul. In the early days, this will be significant to one’s personal finances. You will probably end up with an account separate from the rest of your investments that is 100% shares in your employer’s company that slowly grows and accumulates value. When these plans start out you should certainly include them in any financial planning you do, but they become more important later in your career.

If you have been lucky enough to accumulate a large amount of wealth in these employer provided plans, you may be over exposed to a single stock. It often surprises people when we draw their attention to this fact, occasionally upwards of 20% of their net worth is tied up in a single stock. Obviously, this is not an advisable investing strategy, to be so concentrated in a single asset exposes an enormous downside risk to a person and their wealth.

Of course, this could mean that you have large capital gains or tax burdens to contend with when divesting from this position, which is why you should consult a professional about how best to reorient your finances towards a more balanced and diversified portfolio. In the end, it is paramount that if given the opportunity to participate in these plans. Often, they come with “free money,” like a matching plan, that your employer would otherwise not pay to you. However, as you see these plans grow in value, try to think about strategies you could employ to better diversify your entire portfolio over time.