Author Topic: Mediocre ESPP: take it or leave it?  (Read 2470 times)

msilenus

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Mediocre ESPP: take it or leave it?
« on: October 24, 2013, 05:02:27 PM »
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.

capital

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Re: Mediocre ESPP: take it or leave it?
« Reply #1 on: October 24, 2013, 08:32:55 PM »
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.

geekette

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Re: Mediocre ESPP: take it or leave it?
« Reply #2 on: October 24, 2013, 09:10:32 PM »
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. 

msilenus

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Re: Mediocre ESPP: take it or leave it?
« Reply #3 on: October 24, 2013, 09:28:17 PM »
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.
« Last Edit: October 24, 2013, 09:29:48 PM by msilenus »

nawhite

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Re: Mediocre ESPP: take it or leave it?
« Reply #4 on: October 25, 2013, 01:33:08 PM »
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.

seattlecyclone

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Re: Mediocre ESPP: take it or leave it?
« Reply #5 on: October 25, 2013, 02:43:08 PM »
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.