This advice is usually "Don't (only) invest in the industry you're employed in".
See e.g. the dot-com bubble and how people who worked in IT and had invested their money mainly in IT were screwed, whereas it wasn't so bad if you just got fired and say invested in an S&P 500 index fund.
But yes, investing only in your employer is a particularly bad version of that.
...investing only in your employer is a particularly bad...
Haha when I worked for Lucent long ago they actually had a program set up exactly for that, so my more foolish colleagues received vastly-overpriced stock in place of some percentage of their salary. Thinking back, the managers must have had some kind of incentive because they hyped it in unseemly fashion.
ESPP programs are fairly common, and usually a great decision because they yield a minimum 15% return on the final value of the investment at the end of the program period whether the stock goes up or down. If you sell immediately, you realize a minimum of 90% ARR over the program period. [1]
No need to keep it there if you just want to take your gains and walk.
In some cases one would be better served to run rather than walk. I remember advising colleagues as to the riskiness of this program in late 1999. Three years later LU had lost 98% of its value.
ESPP is guaranteed to make money for employees. Everyone should sell ESPP shares immediately, of course, and most don’t, so functionally you’re right, they’re dangerous, but if you can be mildly disciplined, I don’t think there’s a better investment in the world than taking your employer up on discount ESPP shares then selling the moment they’re in your account.
...functionally you’re right, they’re dangerous, but if you can be mildly disciplined...
It's interesting that these schemes aren't viewed in the same light as e.g. credit card incentives. Getting 0% interest for the first 6 months is a deal good enough to put the credit card bank out of business, but somehow enough credit card borrowers are getting screwed to pay for the incentive overall. TANSTAAFL. Why is that harder to recognize in some circumstances? Is it a class thing? Anyone can get a credit card, while only high-quality people like ourselves can get a job at Acme Inc?
Anyway credit card companies might be evil, but they receive enough scrutiny to be extremely lawful in their evil. (If you actually pay off the debt they won't forget about your payment.) Can we really make the same statement about employers, in general? One might have a standing order to sell these shares at regular intervals, but one has seen enough HR shenanigans by this point to realize that they DGAF about employee interests... "Oh gosh we're sorry that got changed at the beginning of the year and we didn't tell you about it for 9 months while you lost all the money you've ever made in this program! Our recent stock slump has been difficult for everyone! There's nothing we can do about it now! I guess you should have been mildly disciplined..."
Agreed it’s a similar psychological principal, but the threat model you’re describing from HR is silly.
ESPP is only for publicly traded companies, and when the purchase goes through, you get shares at a discount on the more advantageous of the starting and ending stock prices.
HR has no power to prevent you from selling that stock, it’s held in a stock account over which you have full control and HR has none.
See e.g. the dot-com bubble and how people who worked in IT and had invested their money mainly in IT were screwed, whereas it wasn't so bad if you just got fired and say invested in an S&P 500 index fund.
But yes, investing only in your employer is a particularly bad version of that.