Information about ESPPs?

[MVal]

I just recently found out about ESPPs and might be able to participate through my company. Do any of your currently utilize this as a wealth building strategy or have more information about the potential benefits and pitfalls?

[seattlecyclone]

My wife has one of these available. If you have the option to buy shares at a discount and sell them right away, it's free money. Usual warnings about holding company stock for the long term apply; if your ESPP has such a requirement it may not be a good choice.

[Greenpez]

 They vary quite a bit company to company, you'll need to provide more info :)

[tonysemail]

ask your coworkers.
How did they handle their taxes?
Did they make mistakes which you can avoid, etc.

[MustacheAndaHalf]

ESPP puts investment money in the one company where a bad dip in stock price is much more likely to happen as you lose your job.  So you take added risk in participating in your ESPP plan.

If they don't give you a discount, it's not worth it.  If they lock your money up too long, it might not be worth it.

[MVal]

My wife is participating in her Fortune 500 company ESPP. Unfortunately, it's not great but better than nothing. It's a monthly payroll deduction of 5%, stock purchase at 85% of market value on Feb 19 for 6 months. So if the stock price is 100$ on Feb 19, every month on pay day, she gets stocks for 85$. If the stock price goes up to 150$ in, say, April, she still gets the stocks for 85$. Same if the stock price goes down to, say, 10$. The stocks purchased over the 6 months appear in her brokerage account (opened by her company) on 19 August. The 6 months cycle repeats from Aug 19.

Once the stocks are granted and deposited in the brokerage account, the broker gives my wife 3 options. A) keep stocks, do nothing and collect cash dividends. B) liquidate immediately (at a fee)  and send cash to her bank account of choice. C) immediately transfer all stocks to our personal brokerage account (free of charge).

We chose option C), then sell the stocks within our brokerage account (super low charge) and buy VTI with the cash. :)

Very interesting. Perhaps if my company allows the third option as well, I could leverage this method to fund my IRA more quickly.

[MVal]

They vary quite a bit company to company, you'll need to provide more info :)

I work for a publicly traded REIT. We deal in healthcare and senior housing and have been at the top of the market for several years as far as I know.

[NathanP]

My company offers an ESPP where we get company stock at a 15% discount from the price at the start OR end of the 6-month period (lower of the two). So, in a period of falling stock price, I get a quick 15% return on my funds, while I get more during a period of stock growth. The brokerage fee to sell the shares is $25 (not avoidable).

The amount that I am allowed to contribute is roughly what it takes to fully fund Roth IRAs for both my wife and I. My Roth gets the summer payout, while my wife's gets the winter.

[Greenpez]

They vary quite a bit company to company, you'll need to provide more info :)

I work for a publicly traded REIT. We deal in healthcare and senior housing and have been at the top of the market for several years as far as I know.

 I meant more info about the plan. For example, my company offers a plan that is simply a no cost way to buy shares at market cost (the day they it comes out of payroll) that also allows partial share purchase. The fee to sell is small and I can sell whenever I like. Not a super attractive plan, but not awful.

 Some people get a discount on shares, some need to keep the money in for a certain time period, etc.

[MVal]

They vary quite a bit company to company, you'll need to provide more info :)

I work for a publicly traded REIT. We deal in healthcare and senior housing and have been at the top of the market for several years as far as I know.

 I meant more info about the plan. For example, my company offers a plan that is simply a no cost way to buy shares at market cost (the day they it comes out of payroll) that also allows partial share purchase. The fee to sell is small and I can sell whenever I like. Not a super attractive plan, but not awful.

 Some people get a discount on shares, some need to keep the money in for a certain time period, etc.

Ohhh. Well, I am trying to find out--I sent in an inquiry to the company about it and they said they'll have someone get back to me soon.

[humblefi]

I just recently found out about ESPPs and might be able to participate through my company. Do any of your currently utilize this as a wealth building strategy or have more information about the potential benefits and pitfalls?

Here are some principles I followed and some lessons I learnt:

+ I usually got ESPP shares at 15% discount. Note that of the 15% ESPP gains, some of it goes away in taxes. So, depending on your tax bracket, you will not get 15%.

+ I would sell it right away OR keep it based on a couple factors. If the stock prices hovers around $5, then even small negative changes in stock price can wipe out most of 15% ESPP gains.  If the stock price hovers around $50, then I would not sell it right away....hoping for either capital appreciation OR to reach 1 year of hold time to realize long term capital gains only.

+ I got greedy and did not sell any of the ESPP shares for almost 3 years....and then I realized that 10% of my portfolio was in one company i.e. high risk especially when the company started showing lots of negative signs. So, keep a cap on what percentage of your total portfolio the ESPP shares will occupy. I slowly started selling ESPP shares and diversifying into mutual funds....I got the same amount of dividends but from 48 companies instead of 1...my risk was diversified big time!

+ Realizing money after the sale of ESPP shares takes more time than sale of ordinary sale shares....something to do with getting approval from parent company, etc. Sometimes, it has taken me a week also to get the money in my account. So, be careful about committing the funds to something else too soon....I have been bitten by this one.

+ When the ESPP shares go down X%, one of the options is to sell it at a loss and use it for Tax Loss Harvesting. Please decide what the value of X% is and sell it. If you really like the company, you can buy it back at a later time.

Hope that helps.

[Spitfire]

My company offers an ESPP where we get company stock at a 15% discount from the price at the start OR end of the 6-month period (lower of the two). So, in a period of falling stock price, I get a quick 15% return on my funds, while I get more during a period of stock growth. The brokerage fee to sell the shares is $25 (not avoidable).

Mine works the same way. It's great when the stock rises and I get a discount off the lower price. Mine has the option to roll the shares into my Scottrade account for free so I can sell it with a lower commission. I can put up to 10% of my check into it, and I do the maximum. 

[Goldielocks]

i have ESPP where I pay 67% of the price, but a 2 year "no touch" policy.   I have to be a bit careful about withdrawing to avoid losses, as the stock price does indeed move up and down by 10-20%.  With the discount, however, it makes a lot of sense, and I use it for additional savings.