Does he have to pay taxes for matching stock?
Yeah, that's part of the reason why companies sometimes offer this type of loan. The employee cannot sell the stock until it vests, but they have to pay taxes up front on the discount, since it is considered compensation. The loan allows them to defer paying the taxes until the stock vests
I think it's a bad idea. Never disregard worst case scenario.
Certainly, but simply saying "consider the worst-case scenario" as if it is axiomatic doesn't seem that useful in making a decision. I'm going to walk to the grocery store later today. I could be hit by a car, trip and break my neck, be attacked by a psychopath, or any number of other worst-case scenarios. For that matter, there are plenty of people in this thread with 90%+ of their wealth in the stock market, which also isn't immune to the possibility of a huge crash that lasts for decades.
Ultimately we need to come up with some sort of estimate of the probabilities of each outcome and weigh the probabilities and consequences against each other to make any sort of decision. I find this one rather difficult to intuit for a number of reasons:
- I don't have much experience in single-stock investing, short investment horizons, nor know much about this company's future prospects (beyond what you would assume to be already priced in)
- Furthermore, it's a private company, so I have even less understanding of the valuation process
- Market valuations are high and we are late in the economic cycle (both by historical standards), so I would not be surprised if there is a bear market coming within 5 years
- Although his company is in a relatively stable industry (healthcare), I wouldn't put it past the current administration to do something capricious and destabilizing.
After seeing more than one family member lose a fuckton of money during the 2008 crash because they had a ton of retirement money in the individual stock of their employer, this is way too risky for the vast majority of people.
As far as 2008 goes, you could make the same sort of statement about people who bought houses. That is also a leveraged investment of similar size. People somehow managed to maintain this sort of shared delusion that the value of houses is not volatile, even after the crash.
I agree that all other things being equal, keeping money in employer stock is not a good idea due to the correlated risk to your main source of income (often also true of homes, interestingly enough). I get stock-based compensation at my job, and I sell as soon as I can, despite the stock outperforming the market. However, in my brother's case he is being offered a fairly significant discount as a form of compensation as well as a below-market loan rate. That discount would give him an automatic 10% return premium over the market for the next 5 years. That's not something easily shrugged off.
Because of that premium, it feels like there is probably a more sophisticated answer here as well - for instance hedging against losses by buying sector-based puts.
