What percent to put into ESPP?

[tedteddy]

My employer (CVS) allows me to put up to 20k per year into the ESPP. I get a 10% discount on the stock price. I have to hold the stock for a year before selling.

My income is about 150k/year. About 140k of that comes from my employer.

Would putting 20k/year into a single stock be too large of a risk diversification-wise?
I typically max my IRA and 401k and have some vanguard funds on the side.

Last year I put in about 10k into the ESPP.

[Gin1984]

What is your full invested amount?

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[Googs860]

My employer (CVS) allows me to put up to 20k per year into the ESPP. I get a 10% discount on the stock price. I have to hold the stock for a year before selling.

My income is about 150k/year. About 140k of that comes from my employer.

Would putting 20k/year into a single stock be too large of a risk diversification-wise?
I typically max my IRA and 401k and have some vanguard funds on the side.

Last year I put in about 10k into the ESPP.

What is your purchase program frequency?  I'd personally feel more comfortable holding $20k if you're able to sell $5k clips 4x/year than holding a single purchase point for a year.

That said, the 10% discount should shelter you from the majority of any market fluctuations. 

[J Boogie]

Points in favor of: Big income, assuming big net worth so not too much exposure percentage wise, CVS seems to be a stable company in a stable industry with a solid dividend.

Points against: 10% discount is good but not great.  I get 15% off 3M stock, up to 10% of my salary (nowhere near 140k!)


Overall, I'd probably do it.  I don't think you're missing out on too much though. 

[frugalnacho]

I would probably max that.  10% discount is nice.  Often times there will be a holding period and you'll be given 10% off the lower of prices at either the beginning or end of the holding period.  In that case it has the potential to be much more than a 10% discount, but worst case scenario it's still a 10% discount. You'd have to check your specific plan for the actual details.  You'll be buying at least $22,222.22 worth of stock for $20k. 

That discount will count as regular income when you sell it.  If you purchase $100 worth of stock, and you pay $90, that $90 is taken out of your paycheck and is included with your regular income and you pay tax on that income the year you earned it.   When you sell that $100 stock the $90 you already paid is accounted for, but the additional $10 will be realized and counted as regular earned income (and taxed as regular earned income - not as capital gains) from your company in the year you sell it. 

EDIT: Forgot to say I would max it, but I would also sell each chunk of stock asap.  This way you are only investing $20k, and holding $20k max in your company stock, and constantly churning that initial investment as you sell off the matured stock to rebuy new discounted stock. 

[MoonLiteNite]

2 main things to look at.
- Don't put all your  eggs in one basket, even more so if the basket is not liquid... 1 year is a long time to hold a losing stock for.
- How likely is your company stock likely to gain in value/payback in dividends. If your company is flat lined, and does not pay out. Why would you be throwing your money into that instead of an index fund?

And on a personal note, damn i wish i had those max limits!!!!
- 6k per a period  (6 months)
- 15% max
- 15% discount
My company's stock has nearly tripled in a year now... sadly i sold out of my 3 years of ESPP at double, but i still call it a pretty good deal.

[frugalnacho]

2 main things to look at.
- Don't put all your  eggs in one basket, even more so if the basket is not liquid. Can you sell after the buyin? or is there a waiting period?
- How likely is your company stock likely to gain in value/payback in dividends. If your company is flat lined, and does not pay out. Why would you be throwing your money into that instead of an index fund?

And on a personal note, damn i wish i had those max limits!!!!
- 6k per a period  (6 months)
- 15% max
- 15% discount
My company's stock has nearly tripled in a year now... sadly i sold out of my 3 years of ESPP at double, but i still call it a pretty good deal.

Because of the substantial discount offered.  If his company stock didn't increase at all he would permanently tie up $20k worth of money and get $2,222 free, every year.  That's a huge return on investment, even if the investment is stagnant.  If the investment decreases he still has a substantial cushion before he actually loses money.   

With $150k annual income putting a max of $20k* into your employer stock is not that crazy considering the discount given and the potential return on investment. 

If it was me I would be maxing that sucker out instead of investing in a taxable account (I'm assuming with $150k income the OP is maxing all tax advantaged accounts and then investing a bunch in a taxable account as well).  Unless you are expecting the company to implode I think it would be silly to pass up the opportunity.

*It's not $20k/yr, it's just $20k the first year.  Subsequent years will be funded by selling the previous years stock.

[Davids]

Sucks that you have to hold a year before selling but I would still MAX it out if you can.