Author Topic: What is the feeling on ESPP's?  (Read 2684 times)

hypocrispy

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What is the feeling on ESPP's?
« on: December 10, 2015, 08:59:53 AM »
I am VERY green to this whole badassity of financial independence and early retirement. All these numbers and plans have only recently started sinking in to my deeper understanding. 401K, IRA, HSA all used to be abstract concepts that are now much more concrete and I really starting understand how I can most effectively utilize them as tools towards FIRE.

And then I get this email... Apparently my employer offers an Employee Stock Purchase Program (ESPP) and the next offering period is coming up. Of course I immediately jump on the MMM forums to try to find as much information as I can about ESPP. And truth be told, I haven't found much whether that's due to my trouble with the search feature of the forums or these programs just plainly not being that common.

What are the general feelings about ESPP's? Can you share with me some of your experiences with them, good or bad? How do I most effectively use this program? Or should I stay away from it entirely? Are there any other sources of information you can point me towards? Is there anything special I need to be aware of in the tax realm for these plans?

I want to take advantage of as many programs and benefits my employer offers as possible but I also don't want to rush into something I don't completely understand.

The Plan Details:
AFTER tax money is deducted from our paychecks at whatever dollar amount we set (min $20, max $810) for six months. At the END of the six months, company stock is purchased at 85% of closing cost. We may not sell the stock for 3 months after closing date.

mandy_2002

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Re: What is the feeling on ESPP's?
« Reply #1 on: December 10, 2015, 09:48:41 AM »
My take on ESPP is a mixed bag.  My company recently switched from "opt in for option to buy" to "if you opt in, you will buy" which has made ours a lot less desirable.  We also have the option to purchase a lump sum. 

Do you know how they limit your ability to sell the stock?  I am a person who tends to believe that your eggs should not all be in one basket (think Enron).  How much of your portfolio would be in your company if you did the lowest and highest options? 

When I have bought our stock in the past, I immediately sell enough to get my investment back and then hold for a few months to see if I can make any money on the gravy.  This ensures that a hit doesn't eat up my capital, since my company's stock has a tendency to swing wildly.  (I also move the stock for free from the ridiculously expensive brokerage that the company uses to Vanguard.  Sales cost $7 instead of about $60.  It's worth the 3 day lag for me.

Sorry there's not ultimate answer to your question, but these are some things for you to think about.  A little more info on your current standing may be helpful.

dcozad999

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Re: What is the feeling on ESPP's?
« Reply #2 on: December 10, 2015, 10:19:18 AM »
My company has an ESPP with no discount, so I'm not sure why we even have one.

You are getting a 15% discount on the stock, but you have to wait 3 months to sell. So if you feel your company stock will increase or stay the same for the next 3 months and you are willing to take the risk, go for it. If it were my company I'd do it, but I would also limit it to a small amount of my investments.

A friend of mine used to work for a company with an ESPP that gave a 15% discount once per quarter and allowed them to sell the stock the next day.  Now that is gravy.

seattlecyclone

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Re: What is the feeling on ESPP's?
« Reply #3 on: December 10, 2015, 11:32:58 AM »
You are getting a 15% discount on the stock, but you have to wait 3 months to sell. So if you feel your company stock will increase or stay the same or not underperform the market by 15% for the next 3 months and you are willing to take the risk, go for it. If it were my company I'd do it, but I would also limit it to a small amount of my investments.

Added a bit for you. The discount on the ESPP shares means you're very likely to come out ahead by participating in the program. Once you can sell the shares you should do so, since you've already gotten the full benefit of the discount. Holding the shares any longer is little different than buying employer stock at market price, which is generally a bad idea.

AZDude

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Re: What is the feeling on ESPP's?
« Reply #4 on: December 10, 2015, 11:46:56 AM »
Worked at company with similar 15% discount. I would buy at the discount, sell when able, and then put the money into index funds. I would make about $70-$100 every few months with minimal effort.

MayDay

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Re: What is the feeling on ESPP's?
« Reply #5 on: December 10, 2015, 12:00:56 PM »
My old company had a 15% discount but you had to hold for 2 years.  I put ~5% into it, I wasn't willing to risk more than that because of the hold period.

H's company has a ~15% discount, and you don't have to hold at all.  There is a buy every 6 months, and you can put up to 15% of your salary in it, and sell immediately.  So we put the full 15% in, and turn around and sell right away.  So pretty much zero risk.  The purchase price is something like 15% off the lowest price of either the first or last day of the 6 month period. 

TrMama

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Re: What is the feeling on ESPP's?
« Reply #6 on: December 10, 2015, 01:36:04 PM »
That's a decent ESPP.

My company had one similar to this:
 
H's company has a ~15% discount, and you don't have to hold at all.  There is a buy every 6 months, and you can put up to 15% of your salary in it, and sell immediately.  So we put the full 15% in, and turn around and sell right away.  So pretty much zero risk.  The purchase price is something like 15% off the lowest price of either the first or last day of the 6 month period. 

However, then they added an 18mo hold. That made it significantly less desirable. Add to that I get paid in $CAN and the stock is bought and sold in $US so I get the added hassle of currency fluctuations. When the $CAN was going up, this was a good thing. Now that it's swung the other way, I won't touch the ESPP with a 10 foot pole.

In your case, make sure you're maxing out your tax advantaged options first before jumping into this more exotic product. Even then, keep it as a small percentage of your portfolio.

Research the tax implications of selling. When I sold, it triggered an international tax headache.

Sean Og

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Re: What is the feeling on ESPP's?
« Reply #7 on: December 11, 2015, 08:58:43 PM »
H's company has a ~15% discount, and you don't have to hold at all.  There is a buy every 6 months, and you can put up to 15% of your salary in it, and sell immediately.  So we put the full 15% in, and turn around and sell right away.  So pretty much zero risk.  The purchase price is something like 15% off the lowest price of either the first or last day of the 6 month period.

I have exactly the same as this. I sell immediately and dump it into IRAs for myself and my wife. A great benefit that many dont seem to use.