In an Economic Downturn, Employers Should Make Investing Easier for Employees

Published on

Businesses across the world have gotten slammed by COVID-19, and that pressure is felt by everyone from top-level CEOs to brand new hires. As the economy begins to reopen and the possibility of a vaccine becomes increasingly more likely, companies may be starting to see the first signs of recovery – the story may not be so simple for their employees.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q3 2020 hedge fund letters, conferences and more

The pandemic and its associated lockdowns have increased spending requirements and decreased earning opportunities for millions of workers. If you want to earn the trust, respect, and loyalty of your team, you need to acknowledge these hardships and act appropriately. The right solution will be different for every company and every worker, but assisting in the investment process is a good place to start.

How Employers Can Make Investing Easier For Employees

Inspiring healthy investment habits now can lead to much-needed financial security later on: over the last several years, the S&P 500 has grown at over 4 times the rate that wages have. Even so, investment can seem too complex and inaccessible to many workers — now is the time for employers to step in and show them how they can make the stock market work for them. Here’s how they can do it:

1. Start with retirement accounts.

Point zero for all company-facilitated employee investments should be retirement accounts. Despite the endless talk of IRAs and 401(k)s, they’re surprisingly rare: Guideline, a financial services provider specializing in streamlining the small business 401(k), reports that less than half of all small companies offer a firm retirement plan for their employees. With companies like Guideline ready to help make bespoke retirement programs for small businesses of all sorts, there’s no longer an excuse for any business not having one of their own.

Different companies structure their retirement plans differently: smaller, younger businesses may not be able to offer the same levels of employer contribution that more established companies can. That’s no reason not to start one, however: any retirement plan is better than none at all. Especially in moments of economic uncertainty, employees value any kind of safety net being offered.

Retirement accounts of all kinds are good opportunities for investing-shy employees to get a look at what some small-stakes buys look like in action. The relative safety of the stocks found in retirement accounts allows them to serve as a kind of training wheels for more consequential investments later on. There’s no better place to begin employee investment than with retirement accounts — they’re an affordable, accessible way to get things started.

2. Introduce company shares or stock options.

Beyond retirement accounts, one of the best ways to ease the investment process for employees is to start things off in-house. Workers are already metaphorically “bought in” to the business they work for; why not up the stakes a bit by having them actually invest money in the company as well?

Employee stock purchase plans supplement a worker’s compensation with small amounts of stock or equity in the company for which they work. The result is a workforce that stands to benefit more from their business’s growth than if they were being compensated through salary alone. Giving employees company stock gets their skin in the investment game without overwhelming them with an entire portfolio of names and companies to manage.

Making stock options part of compensation doesn’t just give workers investments to hold onto — it also draws them into their business’s overall goals and missions. If the value of a company is dependent on its performance, then the value of employee shares will increase as the employees themselves work harder. This feedback loop can create a more involved and dedicated team for businesses in the long run.

3. Rope in financial advisors

While retirement plans and stock options are a good place to start, the last thing you want is for your employees to fly blind through the world of investing. Opportunities to invest are one thing, but knowing how to properly take advantage of those opportunities is something else entirely.

According to research from the Society for Human Resource Management, 83% of companies now offer financial wellness programs - up from just 20% back in 2015. Bringing in outside expertise to advise your workers is absolutely critical to ensuring that they start their investment journey off on the right foot, especially in times like these. The stock market is more volatile than ever before, and the last thing an employee needs is to base their investment decisions on faulty advice.

Whatever plan a business leader chooses for his or her team, it’s a plan that needs supplementing with the voice of an expert. Even if it’s just a one-off question and answer session, setting your employees up with top-level insight can do wonders for their portfolio down the line.

4. Give them the tools they need.

Not all employee stock investing needs to be done directly through your company. While every employee will appreciate a sit-down with a financial advisor or an equal contribution 401(k), perhaps one of the most powerful things you can do is give your workers the tools they need to take investing into their own hands.

Big-time account providers like TD Ameritrade offer small business plans that can help company leaders give their employees a usable platform, though others may be more interested in allowing their workers an even larger degree of autonomy with, say, Robinhood Gold accounts paid for by the business. Whatever route works best for your business, employee investment autonomy is key for establishing high levels of trust between you and your workers. There’s nothing wrong with setting up a number of company-run investment schemes, but eventually your employees will want to have a go themselves — and you should do everything you can to help them do so.

Now may be a difficult time for businesses and employees alike, but it won’t stay that way forever. As things normalize, workers are going to value financial stability more than ever before, and investment is one of the best routes towards achieving that. As an employer, you can help guide your employees towards investments that will set them up for years to come — and set your business up for success in the process.