Great question! I like this question because it involves some strategy. I answered your question this week on The Pete the Planner Radio Show on 93 WIBC which you can listen to below.
Choosing stock over cash in a bonus situation is a really interesting choice for someone who is on solid financial ground. So what is solid financial ground in this instance? You would need to be out of the ‘surviving’ mode from my four stages of your financial life. Which means you are credit card debt free, you have at least one month of expenses saved up, you maintain a household budget, and you have purchased life insurance for ten times your income. If you can check off all four of those things than I think choosing stock options for your bonus could be a good decision. Now I wouldn’t recommend doing this with every bonus, but if you get to the point where you have over three months of household expenses saved up then I think you could reasonably choose stock options for one of your semi-annual bonuses. The other could be taken out as cash. If you go this route there is one thing to be cautious of. No more than 10% of your finances should be tied up in your employer’s stock. You may be super confident in your employer, but being overly invested isn’t good for anyone.
I also want to reiterate, if you have any consumer debt at all, don’t take this route. If you have no savings at all, don’t take this route. Use cash bonuses to pay off debt and then create an emergency fund, only when those items are accomplished should you move on to considering stock options.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.