Education Video

What Are Stock Buybacks and How Do They Help You?

Hundreds of major American companies, including some of the nation’s biggest employers like Walmart, The Home Depot, Bank of America, and AT&T are using their savings from the 2017 tax cuts to give their employees major pay raises and bonuses.

This is a big win for American employees.

But some companies are also using part of their tax cut savings for “stock buybacks.” Opponents of lower taxes are pointing to these to claim that tax cuts don’t help ordinary people.

But what are stock buybacks and how do they affect everyday Americans?

Most companies don’t own much of their stock–outside investors like people who have 401k plans or have mutual funds do. Stock buybacks occur when companies purchase their own stock. Stock buybacks are a way for companies to reinvest their money in themselves — a sign they have confidence in their future business prospects.

Stock buybacks are simply a company betting on themselves.

But how does this affect you? The biggest beneficiaries of stock buybacks are the millions of regular investors who benefit from boosted stock prices. If you have a 401k retirement plan, or a college investment account, or have a pension at work like a lot of teachers, firemen and police officers do–stock buybacks boost the value of your savings. Giving everyone more money.

Stock buybacks are just one-way companies are using their tax cuts savings. While not as glamorous as pay raises, new hiring, and expansion, they still are good news for the tens of millions of Americans trying to grow their retirement and savings nest egg.