The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: msilenus on October 24, 2013, 05:02:27 PM
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Hi all,
DW has an ESPP that ... well ... here are the parameters:
* 6 month offering period.
* 5% discount on stock purchased.
* Insult to injury: the administrator of her ESPP plan is a different financial institution than the 401(k) and stock award plans. We'd need to transfer the assets around to get them into one of the accounts I track and have access to.
Is it worth it? I don't think we'd buy-and-hold, so the money would be taxable.
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A 10% annual return still isn't bad. You can always calculate how long it'd take you to sell the stock upon and figure out an hourly rate for dealing with the program.
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Also, if it's one of those that gives you 5% off either the first or last price, you can make some decent money, assuming you can turn it over before it drops.
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Hrm. For some reason (foolishness) I was thinking of it as a 5% annual return. 10% is definitely closer to right, but it might even be a bit better than that. The *first* dollar you put into it has a 10% annual return. The last dollar you put in gives you a 5% return over zero years, which yields a much higher annualized rate. I'm pretty sure the aggregate effect is about a 20% return.
Okay. I think I'm sold. Thanks for checking me. Starting to appreciate my own plan a lot more.
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Another thing to keep in mind that helps you is that you're really getting more than 5% every offering. Say you put in $95 which allows you to buy $100 in stock (a 5% discount). Really you are getting $5 from the $95 so your actual return is 5.26% not just 5%. Its a bigger deal with the plans that offer 15% (real number is ~17.5%).
And if there is a lookback feature, its even better. The 5.26%/6 months becomes your worst case scenario (stock is going down). If the stock is going up, you can do much better.
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Yeah, it's not nearly as good as a 15% ESPP, but it's still a nice way to make some extra money. You're unlikely to make better returns on the open market.