How much to put in your GESPP... if you work for a very stable company?

[J Boogie]

Greetings everyone!

Longtime lurker, first time poster.

Minnesota Mustachian here, 28, getting married in a few months.  Plan to stash for a decade then transition fully to my passion of modern joinery (my style of woodworking) when my money makes money.

This question (how much company stock do you buy, in my case between 3 and 10% of my salary) has been asked many times and the usual response includes two pieces of wisdom:

1 - Not too much, because if the company downsizes or struggles you might be snakebit with a layoff and a depleted investment account.

2 - The full 10%, but only after you've maxed your 401k, Roth IRA, and HSA contributions.


However, I feel this might apply differently in my case - I work at an incredibly diversified company that has shown consistently strong performance and pays out a solid dividend even as it invests in new technology and markets.  Also, they don't really do layoffs.  When the recession hit, they offered a lot of early retirement deals to get people off payroll.  It's a well respected company.

In case you're wondering, the company I work for is abbreviated the exact same way that Mr. Money Mustache is.  Though many of our products can be abrasive, the people sure aren't.  If you're having trouble with my fun little clues, consider my location.  I highly doubt there are any consequences for disclosing my workplace on a forum, especially when singing its praises - but I'm just having a little fun with it. 

Anyways, I get a 15% discount off the lowest price of the quarter.  Not bad.

Like any sane individual, I max out my 401k match contributions.  I got an HSA started and I don't have a Roth IRA started, but I plan to. 

I tend to think of the GESPP as currently a better plan than the Roth for this reason - My (future) wife will most likely have a child in the next 2-3 years, which will coincide with both a drop in family income (we're both around the 50k mark, and we both side hustle - me w building furniture, her w social media management) which should put us under 70,700 for a year or two while she drops out of the full time thing to freelance. 

If you, like any married mustachian worth his or her salt, recognize the number $70,700, its because that's how much you can make in a year as a couple before you have to pay capital gains tax.  (that's including your capital gains). 

Of course, if company stock is down, I'll just hold... until the next time our income is less than $70,700, because like any red blooded American my top priority is avoiding taxes.

[ephillipsme]

I work for a growing company and stock is raising. The company doesn't pay a divided and i get a 15% discount. I put a small amount 2% in and clear the funds when the holding period expires and the get the benefit of the discount.  I then sweep the cash into another account.  This might be different if I didn't think the stock price of my company was over valued, Currently trading at a p/e of 65.  If I working for a company whose stock was in the p/e of 20-25 and payed a divided with DRIP int eh program i would hold for a longer time.  I am above the capital gains line so end up paying taxes on the short term gain. 

[MDM]

In your situation there are two questions:
1) How much ESPP should you buy?
2) Of the amount in #1, how much should you hold?

For #1, "as much as you possibly can" is correct, excepting only the case that the stock drops precipitously in the hours/days after you purchase it.  You have at least a 15% return on the amount you put in, so put in as much as you can.

Then, if you want, you can sell immediately.  Your capital gain (or loss) will likely be inconsequential - the result of the few days change between your purchase and sale.  You get charged ordinary tax on the amount 3M gives you to make the purchase, regardless of when (or if) you sell.

Or, if you want, you can hold - this is question #2.  Will 3M beat the average return of the best index fund you might choose as an alternative?

Good luck!

[gimp]

We recently had this question in another subforum. The answers, as MDM said, are:

Buy as much as you can, and then

Sell immediately.

By the way, my friend worked at 3M touch systems for a 6-month co-op, which is just a long internship while you're enrolled in school (but not actually attending). She finished her major project one pay cycle early so they just let her go instead of paying for the last two weeks. I've never heard of that sort of behavior from any company our school works with; they are of course now blacklisted. So now I tell people never to work for them.