How much Apple stock can I keep?

[pnw_guy]

I'm an Apple employee and I have access to an ESPP at Apple. Here are the details:

Employees may purchase the company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six month offering periods. An employee’s payroll deductions under the plan are limited to 10% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year.

My question is how much Apple stock might be reasonable to keep in my portfolio? I really like the idea of keeping the shares I purchase via the ESPP. I really believe in the company and what we're doing, though I know the conventional wisdom is to sell RSUs and the like. But if I really wanted to keep some shares, what should be the upper bound?

Would love any input or advice.

[seattlecyclone]

How much would you own if you didn't work there? Keep that much.

[Niceday]

If you feel you understand the company, there is not much reason to diversity.  Warren Buffet on diversification:

“Diversification is protection against ignorance,” Buffet famously says. “It makes little sense if you know what you're doing.”

If you're afraid of another Enron scenario(which is 99.99% unlikely), I'd sell some.

If the are companies you like more than Apple, and you don't have additional money(e.g. from your income, savings, etc) to buy these companies,  then sell some to buy the other companies.

[secondcor521]

I had several rules of thumb:

1.  Buy as much as possible in ESPP (after 401(k) and IRA).  Maybe check the Investment Order thread.

2.  Never more than 5% of my employer's stock.

3.  Try to hold the ESPP shares for LTCG.

If you want to take on more risk, you could increase the 5% to 10% or even more.  My employer stocks were always relatively volatile tech stocks, and I just didn't want the additional risk.

[reeshau]

Re: diversification:  keep in mind, your income is already dependent on the company.  So, if bad news came, then it could affect your income *and*  your net worth.  If you are a company insider, meaning your trades are legally limited because of your non-public knowledge about the company's performance and strategy, then yes you might ignore regular diversification and use your particular knowledge advantage over the market.  If you are a worker drone, and do not have Tim Cook's cell number, know the rollout date for the Apple Car, or direct the sourcing strategy for semiconductors, then you are right to be concerned.

And even as a company insider, you have no control of other things, like if China decides to get more aggressive toward Taiwan, or makes a further data restriction on foreign companies.

Traditional advice would be to have no more than 10% of your investments in any given choice, or 1/n, where n is the number of your holdings.  (In individual stocks, for example)  However, if you are indexing, keep in mind the high representation Apple already has in the S&P 500 and the NASDAQ QQQ.  You probably already have a ton of Apple.

It is great to work for a company that is so successful.  I am sure many of your colleagues are bragging about how well they are doing; as was mentioned, that was also the atmosphere at Enron.  Things are good until they aren't.  While I don't think Apple is Enron, at $3T valuation, I would say the Apple Car is already expected by the market.  Should it again get cancelled / indefinitely delayed / reduced to a more-modest systems capability /  supplier position, the stock could take a huge hit.

[Niceday]

Berkshire’s Apple stake now makes up more than 40% of its equity portfolio
https://www.cnbc.com/2022/01/04/warren-buffett-makes-over-120-billion-on-apples-trot-to-3-trillion-among-his-best-bets-ever.html

Conventional wisdom on diversification provides safe and industry-average return.  If you want out-performance, you need to be a little bit unconventional.  If Apple is in your circle of competence, I would keep as much Apple as you're comfortable, as long as you think Apple will continue to outperform.  It's not to say this is without risk, but the risk is probably not as high as you may think.  Since you work at Apple, I suspect you have marketable skills and would be able to find another job easily in the event that you lose your job at Apple.

[yachi]

I had several rules of thumb:

1.  Buy as much as possible in ESPP (after 401(k) and IRA).  Maybe check the Investment Order thread.

2.  Never more than 5% of my employer's stock.

3.  Try to hold the ESPP shares for LTCG.

If you want to take on more risk, you could increase the 5% to 10% or even more.  My employer stocks were always relatively volatile tech stocks, and I just didn't want the additional risk.

This is good advice, but it doesn't particularly scale to OP's situation.  At current market prices, 5% of Apple's stock is worth 138 Billion dollars.

One thing to note on holding discounted shares long term.  The 15% discount becomes less relevant the longer you hold the shares, and more of your returns will be due to how successful the company is in increasing the stock price.

[ChpBstrd]

Employees may purchase the company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six month offering periods.

Let's unpack this. First, you're getting a 15% ROI handed to you right away. I haven't done all the math, but this should offset most of the 1-5% benefit we all hope to attain through diversification and rebalancing. Second, buried in the line above is the clause that you're getting the *lower* of the price at the beginning *or* the end of the 6mo period. This is like having a call option handed to you, because you have the opportunity but not the obligation, to buy at today's price or the future price, whichever is lower. Another way to look at it is that you'll be allowed to buy the shares with earnings six months from now at today's price. Add the value of that optionality to your ROI and you're probably looking at an opportunity to earn ~17% or so at low risk. I can't beat that with my diversified and aggressive portfolio. 

My answer is that I would buy $25k per year.

[seattlecyclone]

Yeah, you should definitely participate in the ESPP at the maximum level allowed. The discount is valuable, particularly in periods of stock price appreciation. Immediately sell most or all of the shares. VTSAX and other US index funds already have over 5% of their value in AAPL. You don't need to add to that.

[pnw_guy]

Employees may purchase the company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six month offering periods.

Let's unpack this. First, you're getting a 15% ROI handed to you right away. I haven't done all the math, but this should offset most of the 1-5% benefit we all hope to attain through diversification and rebalancing. Second, buried in the line above is the clause that you're getting the *lower* of the price at the beginning *or* the end of the 6mo period. This is like having a call option handed to you, because you have the opportunity but not the obligation, to buy at today's price or the future price, whichever is lower. Another way to look at it is that you'll be allowed to buy the shares with earnings six months from now at today's price. Add the value of that optionality to your ROI and you're probably looking at an opportunity to earn ~17% or so at low risk. I can't beat that with my diversified and aggressive portfolio. 

My answer is that I would buy $25k per year.

I'm definitely going to participate in the ESPP as much as I'm allowed. The real question was about immediately selling or whether I'd be ok holding onto some of it.

[ChpBstrd]

Employees may purchase the company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six month offering periods.

Let's unpack this. First, you're getting a 15% ROI handed to you right away. I haven't done all the math, but this should offset most of the 1-5% benefit we all hope to attain through diversification and rebalancing. Second, buried in the line above is the clause that you're getting the *lower* of the price at the beginning *or* the end of the 6mo period. This is like having a call option handed to you, because you have the opportunity but not the obligation, to buy at today's price or the future price, whichever is lower. Another way to look at it is that you'll be allowed to buy the shares with earnings six months from now at today's price. Add the value of that optionality to your ROI and you're probably looking at an opportunity to earn ~17% or so at low risk. I can't beat that with my diversified and aggressive portfolio. 

My answer is that I would buy $25k per year.

I'm definitely going to participate in the ESPP as much as I'm allowed. The real question was about immediately selling or whether I'd be ok holding onto some of it.

Ooohhh. I see.

You'll need to consult your plan documentation to see if there is a minimum vesting period. There usually is.

If they award the shares at the end of the 6mo period, and you get to buy them at the price on month 1 or month 6, whichever is lower, and there's no vesting period involved, I might immediately sell in month 6 and apply the funds to my regular AA, because there would be nothing else to gain from having a concentrated position in one company.

The main reason not to sell immediately in that scenario would be avoidance of short term capital gains taxes. There is a case to be made for holding at least a year, because you're not getting all that much diversification going from AAPL to an index where AAPL is one of the largest stocks and it's highly correlated.

[seattlecyclone]

There's little to no short-term capital gains from selling immediately in these ESPP programs. The discount off the purchase date FMV will be taxed as wage income when you sell. Only any increase in value after the purchase date will count as a capital gain, which will be minimal if you sell immediately.

There's a further date 18 months out from the purchase where if the stock increased in value in the six months before purchase, that increase transforms from wage income into a long-term gain. Obviously the more the stock increased during this period the more incentive you have to hold for 18 months. Even if it doubled in value in those six months, you get most of the benefit out of the ESPP on the day the shares vest. The added benefit you stand to gain from having a slightly lower tax rate applied to a portion of the income is relatively minor in comparison, and has to be balanced against the risk inherent in having so much of your net worth tied up in one stock.

Also, read this old thread for more information about how ESPP taxation works, and how you will likely need to manually adjust the numbers from your 1099-B in order to avoid being double-taxed when you sell.

[jinga nation]

I had several rules of thumb:

1.  Buy as much as possible in ESPP (after 401(k) and IRA).  Maybe check the Investment Order thread.

2.  Never more than 5% of my employer's stock.

3.  Try to hold the ESPP shares for LTCG.

If you want to take on more risk, you could increase the 5% to 10% or even more.  My employer stocks were always relatively volatile tech stocks, and I just didn't want the additional risk.

This is good advice, but it doesn't particularly scale to OP's situation.  At current market prices, 5% of Apple's stock is worth 138 Billion dollars.

One thing to note on holding discounted shares long term.  The 15% discount becomes less relevant the longer you hold the shares, and more of your returns will be due to how successful the company is in increasing the stock price.

#2 means no more than 5% of your portfolio should be employer's stock. perhaps 10%.

[pnw_guy]

I had several rules of thumb:

1.  Buy as much as possible in ESPP (after 401(k) and IRA).  Maybe check the Investment Order thread.

2.  Never more than 5% of my employer's stock.

3.  Try to hold the ESPP shares for LTCG.

If you want to take on more risk, you could increase the 5% to 10% or even more.  My employer stocks were always relatively volatile tech stocks, and I just didn't want the additional risk.

This is good advice, but it doesn't particularly scale to OP's situation.  At current market prices, 5% of Apple's stock is worth 138 Billion dollars.

One thing to note on holding discounted shares long term.  The 15% discount becomes less relevant the longer you hold the shares, and more of your returns will be due to how successful the company is in increasing the stock price.

#2 means no more than 5% of your portfolio should be employer's stock. perhaps 10%.

I've been toying with tilting towards Apple by keeping 15% of my portfolio in company stock (accounting for the fact that it makes up about 5% of my US total stock market index).

[Looks around nervously while waiting for posters to bash this stock picking strategy]

[alm0stk00l]

I had several rules of thumb:

1.  Buy as much as possible in ESPP (after 401(k) and IRA).  Maybe check the Investment Order thread.

2.  Never more than 5% of my employer's stock.

3.  Try to hold the ESPP shares for LTCG.

If you want to take on more risk, you could increase the 5% to 10% or even more.  My employer stocks were always relatively volatile tech stocks, and I just didn't want the additional risk.

This is good advice, but it doesn't particularly scale to OP's situation.  At current market prices, 5% of Apple's stock is worth 138 Billion dollars.

One thing to note on holding discounted shares long term.  The 15% discount becomes less relevant the longer you hold the shares, and more of your returns will be due to how successful the company is in increasing the stock price.

#2 means no more than 5% of your portfolio should be employer's stock. perhaps 10%.

I've been toying with tilting towards Apple by keeping 15% of my portfolio in company stock (accounting for the fact that it makes up about 5% of my US total stock market index).

[Looks around nervously while waiting for posters to bash this stock picking strategy]

I actually think it is fine. I don't believe that many traditional views on AA and risk would recommend it, but at the end of the day, it isn't like you will end up homeless either. I think a lot of us get so focused on micro-optimizing every decision that we forget that there is upside to almost everything if you are flexible and resilient. There is a chance that running with 15% could cost you a couple points over the next 10 years... there is a chance it could gain you a couple points... and overall because you care about your finances and focus on doing it well you will probably be quite rich 10 years from now regardless. If I could buy discounted AAPL I would make it as large a part of my portfolio as I could afford, but that fits my risk profile. If I was retiring in the next 5 years I would divest from my employer.

[Much Fishing to Do]

My youngest came to me 6 years ago when he was 7 and had saved up enough money to ask me to buy him a half share of APPL, his only investment.  Today whenever someone brings up investing in a room he is quick to say "my investments are up about 500% in the last 5 years, how are you doing?"

[SweatingInAR]

I have faced this conundrum over the years, too. The emotional side of me came up with a compromise that works for me with regards to company stock:

Hold enough company stock that you would be happy if it doubled, but not too sad if it cut in half.

For my first few years working, that amount was $5k. A gain of $5k would have made me very happy, but a loss of $2.5k would not have made me too sad.
As my investments and lifestyle grew, that amount became $10k. It has been steady at $10k even as my net worth more than doubled. For tax filing simplicity, I sell whole chunks instead of partial.

[BicycleB]

My youngest came to me 6 years ago when he was 7 and had saved up enough money to ask me to buy him a half share of APPL, his only investment.  Today whenever someone brings up investing in a room he is quick to say "my investments are up about 500% in the last 5 years, how are you doing?"

Now THAT's a fun reality show!

[KarefulKactus15]

I'd like ... Buy the max?  I had a similar option with another large company employer.   No regrets.  I wouldn't be so enthusiastic of it was a small market cap.

That discount is pretty insane. I think large cash heavy companies like apple, Microsoft, Berkshire.....

Basically all the people sitting on AAA ratings and 100s of billions of dollars are about to gobble up opportunities in the next down cycle.       I'm not hopeful for Facebook though.  I think they are a one trick pony.