Author Topic: Company stock question  (Read 2396 times)

Done by Forty

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Company stock question
« on: June 11, 2013, 12:39:15 PM »
Hi, MMMers!  I had a quick question about a company stock purchase.  I recently switched companies and they offer, twice a year, the ability to purchase company stock under the current scenario:

-You contribute bi-weekly an amount you decide for a 6 month period
-at the end of the 6 months, you buy the stock at a 15% discount from the lower of two prices: the last date of the 6th month period (Dec 31st, 2013) or the first date of the 6th month period (July 1, 2013) it's a 'lookback' option
-You can decide every 6 months whether you want to re-enroll or not
-You need to hold the stock for 18 months, or else the 15% discount would count as regular income...if you wait the 18 months, it's taxed at the capital gains rate

My plan is to hold no more than 1% of net worth in single stock, as we're passive index investors.  However, is even playing around with 1% foolish...or is the 15% plus the lookback worth considering, in your opinion?  I realize there's no crystal ball or "right" answer...just looking for a poll of what other Mustachians would do given this choice.


  • Walrus Stache
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Re: Company stock question
« Reply #1 on: June 11, 2013, 12:57:57 PM »
It's obviously going to depend somewhat on what company you work for...

...but I've done this before and had some of the same reservations as you.   I don't want to hold a lot of one stock.  And having a job there counts a bit towards this as well...  If the company craps you could stand to lose both what you have in the stock and your primary source of income.

I think I put a pretty small amount in -- like 2-3%.  It turns out this was right at the point where tech stocks crapped and I ended up with quite a lot of shares at the rock-bottom price.  It actually turned out pretty well, but my market timing was purely accidental.


  • Bristles
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Re: Company stock question
« Reply #2 on: June 11, 2013, 02:04:24 PM »
I did this for a few years. The plan was exactly the same except in Canada there's no minimum holding period for capital gains.

I'd still recommend selling the stock the day it's granted. Worst case, you make an instant 15% bonus on however much you contributed, even if it's taxed as income.


  • Bristles
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Re: Company stock question
« Reply #3 on: June 11, 2013, 02:33:29 PM »
Even paying ordinary income taxes, that is free money! Take the discount and sell it ASAP.

Just be sure when you file your tax return, that the 15% is included in the right place, as part of your wages. You don't want it double-taxed (as both ordinary income AND capital gains), but you don't want to risk non-payment either.


  • Handlebar Stache
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Re: Company stock question
« Reply #4 on: June 11, 2013, 03:43:26 PM »
I would buy if you think the company's in decent shape.  15% is a nice discount.  I only hold company stock right now because of stock bonuses that start vesting next spring, but if there was a discounted employee stock purchase option, I would take advantage of it.  I would probably try to hold the 18 months for lower taxes, too, depending on how high your tax bracket is.


  • Stubble
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Re: Company stock question
« Reply #5 on: June 11, 2013, 09:46:04 PM »
I agree with the above posters regarding signing up for the program and selling the stock the day you get it. However, just wanted to add a note of caution. My company has a stock purchase program which is pretty similar to yours. They also have these periodic blackout windows in which employees are barred from selling and buying company stock which makes no sense for an engineer at my level with no insider information. Anyhow, sometimes the ESPP vesting date (the day it is deposited in your account) co-incides with these blackout windows so you have to hold the stock for about a month before you can sell it. If the stock price goes under in that period then you are stuck. I would make sure you don't have any such restrictions in your company before signing up.