ESPP with one year holding period

[ldigz]

My ESPP - 15% discount, can contribute 10% of income, quarterly purchase, a look back feature to the lower price of start or end of quarter. One year mandatory holding period.

Fortune 500 company in communications & entertainment. Pays 3% annual dividends. Share prices are down substantially this year, but are generally steady over time.

I know the usual advice is max it out and sell immediately, but that seems to get a little fuzzy when there's a holding period. I cannot sell until the 366th day. Even at 10% of my income, this would equal less than 5% of my existing 401K/Roth IRA balance.

Should I max it out?

[MDM]

ldigz, welcome to the forum.

While not as attractive as being able to take the 15% gain immediately, if you make the non unreasonable assumption that your company's performance will be about the same as the overall S&P 500, you have a 15% before-tax head start in case your company doesn't do as well.

There are no guarantees, and yes it's a little fuzzy for you, but it's a reasonable bet.

[MustacheAndaHalf]

When you get a 15% discount plus say 2.5% from price moves, you're paying $82.50 for $100 worth of stock.  Your $82.50 grows by 21% to become $100 worth of stock.  That's how I'd compare it to other choices: a 21% gain.

If you can go without 10% of your salary for 12 months, I would max it out.  At the end of 12 months, you can sell and have 102.1% of your salary (1/10th x 21%) leaving you ahead.  Keep in mind when the company is in trouble, their stock is likely to drop while they fire people.  So keep your NW diversified.

[ATtiny85]

Just wanted to mention naturally you do not need to max it out. Ease into it maybe and see how you feel while waiting.

[ldigz]

Thanks everyone, for the advice.

I was initially planning to ease up to the max - I've been purchasing at 3% of salary the last 2 quarters, which is roughly the amount of RSU grants I'll start receiving this year. I had planned to slowly bump it up as my RSUs increase over time. However, with the stock price being down so much, I was considering accelerating that plan to "buy low".

I haven't done a real analysis of the stock, because that level of effort is beyond my interest, but it does seem a bit oversold. It's a relatively stable company, I expect it will continue to be financially successful.