Buying shares in a company after you quit
"US law dictates that you cannot buy / sell shares in a company you   work for except during open trading windows. I understand lockout   periods when you're in a company but what about after you quit? There's no such law. Trading lockouts are imposed by companies themselves to avoid the complexities of identifying ""insiders"". For large companies it sometimes is easier/cheaper to assume everyone is insider instead of imposing internal data flow controls and limitations. For such companies, their internal policies would also manage how the employees who are leaving should be treated." Insider trading is when you buy or sell an investment based on material, non-public information that gives you an unfair advantage over the rest of traders in that market.  Working for a company is one way that you might have such information, but whether it is insider trading is not contingent on you working there. You could use that information a long time after leaving the company. You don't even need to have worked there. If a friend/relative gave you non-public information because THEY work there, it is still insider trading.
Now, if I'm not mistaken, tracking a value-weighted index is extremely easy - just buy the shares in the exact amount they are in the index and wait. Yes in theory. In practise this is difficult. Most funds that track S&P do it on sample basis. This is to maintain the fund size. Although I don't have / know the exact number ... if one wants to replicate the 500 stocks in the same %, one would need close to billion in fund size. As funds are not this large, there are various strategies adopted, including sampling of companies [i.e. don't buy all]; select a set of companies that mimic the S&P behaviour, etc. All these strategies result in tracking errors. There are algorithms to reduce this. The only time you would need to rebalance your holdings is when there is a change in the index, i.e. a company is dropped and a new one is added, right? So essentially rebalance is done to; If so, why do passive ETFs require frequent rebalancing and generally lose to their benchmark index? lets take an Index with just 3 companies, with below price. The total Market cap is 1000  The Minimum required to mimic this index is 200 or Multiples of 200. If so you are fine.    More Often, funds can't be this large. For example approx 100 funds track the S&P Index. Together they hold around 8-10% of Market Cap. Few large funds like Vangaurd, etc may hold around 2%. But most of the 100+ S&P funds hold something in 0.1 to 0.5 range. So lets say a fund only has 100. To maintain same proportion it has to buy shares in fraction. But it can only buy shares in whole numbers. This would then force the fund manager to allocate out of proportion, some may remain cash, etc. As you can see below illustrative, there is a tracking error. The fund is not truly able to mimic the index.  Now lets say after 1st April, the share price moved, now this would mean more tracking error if no action is taken [block 2] ... and less tracking error if one share of company B is sold and one share of company C is purchased.  Again the above is a very simplified view. Tracking error computation is involved mathematics.  Now that we have the basic concepts, more often funds tracking S&P; Thus they need to rebalance. You will need to buy a stock before the ex-dividend date to receive the dividends. You can sell a stock on the ex-dividend date or after and you will receive the dividends. So if the ex-dividend date is the 5th August, you need to buy before the 5th and you can sell on the 5th or after, to receive the dividends. Definitions from the ASX: Record date The Record Date is 5.00pm on the date a company closes its share   register to determine which shareholders are entitled to receive   the current dividend.  It is the date where all changes to   registration details must be finalised.   Ex dividend date The ex dividend date occurs two business days before the company's   Record Date. To be entitled to a dividend a shareholder must have   purchased the shares before the ex dividend date. If you purchase   shares on or after that date, the previous owner of the shares (and   not you) is entitled to the dividend. A company's share price may move up as the ex dividend date approaches   and then fall after the ex dividend date. "Switching to only 401k or only SPY?  Both bad ideas.  Read on. You need multiple savings vehicles.  401k, Roth IRA, emergency fund.  You can/should add others for long term savings goals and wealth building.  Though you could combine the non-tax-advantaged accounts and keep track of your minimum (representing the emergency fund). SPY is ETF version of SPDR index mutual fund tracking the S&P 500 index.  Index funds buy weighted amounts of members of their index by an algorithm to ensure that the total holdings of the fund model the index that they track.  They use market capitalization and share prices and other factors to automatically rebalance.   Individual investors do not directly affect the composition or makeup of the S&P500, at least not visibly.  Technically, very large trades might have a visible effect on the index makeup, but I suspect the size of the trade would be in the billions.   An Electronically Traded Fund is sold by the share and represents one equal share of the underlying fund, as divided equally amongst all the shareholders.  You put dollars into a fund, you buy shares of an ETF. In the case of an index ETF, it allows you to ""buy"" a fractional share of the underlying index such as the S&P 500. For SPY, 10 SPY shares represent one S&P basket.  Targeted retirement plan funds combine asset allocation into one fund.  They are a one stop shop for a diversified allocation.  Beware the fees though.  Always beware the fees. Fidelity offers a huge assortment of plans.  You should look into what is available for you after you decide how you will proceed.  More later. SPY is a ETF, think of it as a share of stock.  You can go to a bank, broker, or what have you and set up an account and buy shares of it.  Then you have x shares of SPY which is the ETF version of SPDR which is an index mutual fund. If the company is matching the first 10% of your income on a 1:1 basis, that would be the best I've heard of in the past two decades, even with the 10 year vesting requirement.  If this is them matching 1 dollar in 10 that you contribute to 401k, it may be the worst I've ever heard of, especially with 10 year vesting.  Typical is 3-5% match, 3-5 year vesting. Bottom line, that match is free money.  And the tax advantage should not be ignored, even if there is no match. Research: I applaud your interest.  The investments you make now will have the greatest impact on your retirement.   Here's a scenario:  If you can figure out how to live on 50% of your take home pay (100k * 0.90 * 0.60 * 0.5 / 12) (salary with first 10% in 401k at roughly 60% after taxes, social security, medicare, etc. halved and divided by 12 for a monthly amount), you'll have 2250 a month to live on.  Since you're 28 and single, it's far easier for you to do than someone who is 50 and married with kids.  That leaves you with 2250 a month to max out 401k and Roth and invest the rest in wealth building.  After four or five years the amount your investments are earning will begin to be noticeable.  After ten years or so, they will eclipse your contributions.  At that point you could theoretically live of the income.  This works with any percentage rate, and the higher your savings rate is, the lower your cost of living amount is, and the faster you'll hit an investment income rate that matches your cost of living amount.  At least that's the early retirement concept.   The key, as far as I can tell, is living frugally, identifying and negating wasteful spending, and getting the savings rate high without forcing yourself into cheap behavior.  Reading financial independence blog posts tells me that once they learn to live frugally, they enjoy it.   It's a lot of work, and planning, but if you want to be financially independent, you are definitely in a good position to consider it. Other notes:" The same applies if you were looking for a business to buy: would you pay more for a business that is doing well making increasing profits year after year, or for a business that is not doing so well and is losing money. A share in a company is basically a small part of a company which a shareholder can own. So would you rather own a part of a company that is increasing profits year after year or one that is continuously losing money? Someone would buy shares in a company in order to make a better return than they could make elsewhere. They can make a profit through two ways: first, a share of the company's profits through dividends, and second capital gains from the price of the shares going up. Why does the price of the shares go up over the long term when a company does well and increases profits? Because when a company increases profits they are making more and more money which increases the net worth of the company. More investors would prefer to buy shares in a company that makes increasing profits because this will increase the net worth of the company, and in turn will drive the share price higher over the long term. A company's increase in profits creates higher demand for the company's shares. Think about it, if interest rates are so low like they are now, where it is hard to get a return higher than inflation, why wouldn't investors then search for higher returns in good performing companies in the stock market? More investors' and traders' wanting some of the pie, creates higher demand for good performing stocks driving the share price higher. The demand for these companies is there primarily because the companies are increasing their profits and net worth, so over the long term the share price will increase in-line with the net worth. Over the short to medium term other factors can also affect the share price, sometime opposite to how the company is actually performing; however this is a whole different answer to a whole different question. I've been offered a package that includes 100k stock options at 5 dollars a share. They vest over 4 years at 25% a year. Does this mean that at the end of the first year, I'm supposed to pay for 25,000 shares? Wouldn't this cost me 125,000 dollars? I don't have this kind of money. At the end of the first year, you will generally have the option to pay for the shares. Yes, this means you have to use your own money. You generally dont have to buy ANY until the whole option vests, after 4 years in your case, at which point you either buy, or you are considered 'vested' (you have equity in the company without buying) or the option expires worthless, with you losing your window to buy into the company. This gives you plenty of opportunity to evaluate the company's growth prospects and viability over this time. Regarding options expiration the contract can have an arbitrarily long expiration date, like 17 years. You not having the money or not isn't a consideration in this matter. Negotiate a higher salary instead. I've told several companies that I don't want their equity despite my interest in their business model and product. YMMV.   Also, options can come with tax consequences, or none at all. its not a raw deal but you need to be able to look at it objectively. "No.  If the share price drops to $0, it's likely that the company is in bankruptcy. Usually, debt holders (especially holders of senior debt) are paid first, and you're entitled to whatever the bankruptcy proceedings decide to give holders of equity after the debt holders are paid off. More often than not, equity holders probably won't get much. To give an example, corporate bankruptcy usually involves one of two options: liquidation or reorganization. In the US, these are called Chapter 7 and Chapter 11 bankruptcy, respectively. Canada and the United Kingdom also have similar procedures for corporations, although in the UK, reorganization is often referred to as administration. Many countries have similar procedures in place. I'll use the US as an example because it's what I'm most familiar with. In Chapter 7 bankruptcy, the company is liquidated to pay its debts. Investopedia's article about bankruptcy states: During Chapter 7 bankruptcy, investors are considered especially low on the ladder. Usually, the stock of a company undergoing Chapter 7 proceedings is usually worthless, and investors lose the money they invested. If you hold a bond, you might receive a fraction of its face value. What you receive depends on the amount of assets available for distribution and where your investment ranks on the priority list on the first page. In Chapter 11 bankruptcy, the company is turned over to a trustee that guides it through a reorganization. The Investopedia article quotes the SEC to describe what happens to stockholders when this happens: ""During Chapter 11 bankruptcy, bondholders stop receiving interest and principal payments, and stockholders stop receiving dividends. If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds or a combination of stock and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company. The new shares may be fewer in number and worth less. The reorganization plan spells out your rights as an investor and what you can expect to receive, if anything, from the company."" The exact details will depend on the reorganization plan that's worked out, local laws, court agreements, etc.. For example, in the case of General Motor's bankruptcy, stockholders in the company before reorganization were left with worthless shares and were not granted shares in the new company." For one, the startup doesn't exist yet, so until March I will get nothing on hand, though I have enough reserves to bridge that time. I would not take this deal unless the start-up exists in some form.  If it's just not yet profitable, then there's a risk/reward to consider.  If it doesn't exist at all, then it cannot make a legal obligation to you and it's not worth taking the deal yet.  If everything else is an acceptable risk to you, then you should be asking the other party to create the company and formalize the agreement with you. As regards reserves, if you're really getting paid in shares instead of cash, then you may need them later.  Shares in a start-up likely are not easy to sell (if you're allowed to sell them at all), so it may be a while before a paycheck given what you've described. For a second, who pays the tax? This is my first non-university job so I don't exactly know, but usually the employer has to/does pay my taxes and some other stuff from my brutto-income (that's what I understood). If brutto=netto, where is the tax? This I cannot answer for Germany.  In the U.S. it would depend in part on how the company is organized.  It's likely that some or all of the tax will be deferred until you monetize your shares, but you should get some professional advice on that before you move forward.  As an example, it's likely that you'd get taxed (in part or in whole) on what we'd call capital gains (maybe Abgeltungsteuer in German?) that would only be assessed when you sell the shares. For third, shares are a risk. If I or any other in the startup screw really, my pay might be a lot less than expected. Of course, if it works out I'm rich(er). This is the inherent risk of a start-up, so there's no getting around the fact that there's a chance that the business may fail and your shares become worthless.  Up to you if you think the risk is acceptable.  Where you can mitigate risk is in ensuring that there's a well-written and enforceable set of documents that define what rights go with the shares, who controls the company, how profits will be distributed, etc.  Don't do this by spoken agreement only.  Get it all written down, and then get it checked by a lawyer representing your interests. What most respondents are forgetting, is when a company allows its employees to purchase its shares at a discount with their salary, the employee is usually required to hold the stock for a number of years before they can sell them. The reason the company is allowing or promoting its employees to purchase its shares at a discount is to give the employees a sense of ownership of the company. Being a part owner in the company, the employee will want the company to succeed and will tend to be more productive. If employees were allowed to purchase the shares at a discount and sell them straight away, it would defeat this purpose. Your best option to decide whether or not to buy the shares is to work out if the investment is a good one as per any other investment you would undertake, i.e. determine how the company is currently performing and what its future prospects are likely to be. Regarding what percentage of pay to purchase the shares with, if you do decide to buy them, you need to work that out based on your current and future budgetary needs and your savings plan for the future.