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Employee Stock Purchase Plan
Posted on 6/12/24 at 2:29 pm
Posted on 6/12/24 at 2:29 pm
I started working for a new company about a year ago and they offer an ESPP. The purchase occurs every 6 months in the amount you chose to withhold from your check up to 15k per year. The plan gives you a 15% discount on the median price of the stock for the last 6 month period. You must hold the stock for 1 year from the purchase date before selling.
My wife and I have been saving $400/week for the past 2 years to hopefully buy a vacation/rental property. Our timeline is to purchase probably in the next 3-5 years.
My question is, should I be maxing the ESPP and then putting anything left over in the brokerage instead of worrying about putting the full $400/week? I understand this ties me a bit closer to my company instead of taking that $400 and buying VOO with it every week, but if this is short term I don’t think the risk are too high (large energy infrastructure company).
I feel like the ESPP is a free minimum 15% every 6 months. I could just hold for a year and sell to reinvest in VOO. What am I missing?
My wife and I have been saving $400/week for the past 2 years to hopefully buy a vacation/rental property. Our timeline is to purchase probably in the next 3-5 years.
My question is, should I be maxing the ESPP and then putting anything left over in the brokerage instead of worrying about putting the full $400/week? I understand this ties me a bit closer to my company instead of taking that $400 and buying VOO with it every week, but if this is short term I don’t think the risk are too high (large energy infrastructure company).
I feel like the ESPP is a free minimum 15% every 6 months. I could just hold for a year and sell to reinvest in VOO. What am I missing?
7
Posted on 6/12/24 at 3:00 pm to Merica
quote:
What am I missing?
Market only goes up, so no flaws in the plan. But what if...
In all seriousness though, since this is a luxury purchase you can always delay if the market shits the bed. If you have to delay the sale of the stock, you may want to shorten that timeframe down to 2-4 years (push it forward since you'd be stuck for a year). Once you got within a couple of years of the purchase - unless the eventual recession already happened - I would strongly consider not using VOO or individual stock for that goal.
Posted on 6/12/24 at 3:13 pm to Merica
So bizarre. I had a thread typed up extremely similar to yours.
I don't have much confidence in my company to keep going up, but it bottomed out at around $13 a share a year or so ago and that's when I started buying in. It had dropped from $70 down to $13. I wasn't interested at $70 but once they had their first good quarterly report in a few years, I decided to take a chance on it. Now I'm just trying to figure out how long I hold the stock. We don't have a wait period to hold after they execute the buy, and our limitation is 10% of our salary. It has gone up with each quarterly earnings report since then and is now around $22-23 a share. If you have moderate comfort with your company's direction and their ability to execute, and feel like it can continue to grow more than the VOO then I'd keep it there. Otherwise sell it as soon as you can. I think I'm up something pretty nice like 44% on my DCA of my company stock plan. For now I'm holding until they release a negative earnings report.
My company stock spikes around earnings reports, then it seems to fizzle a bit until the next earnings call. So I'm debating whether I sell it all once it appears the spike has plateau'd then buy in again before earnings report. I'd be paying short term capital gains then, but I'd be earning more than that assuming the stock continues to go up, which can only happen for so long.
I don't have much confidence in my company to keep going up, but it bottomed out at around $13 a share a year or so ago and that's when I started buying in. It had dropped from $70 down to $13. I wasn't interested at $70 but once they had their first good quarterly report in a few years, I decided to take a chance on it. Now I'm just trying to figure out how long I hold the stock. We don't have a wait period to hold after they execute the buy, and our limitation is 10% of our salary. It has gone up with each quarterly earnings report since then and is now around $22-23 a share. If you have moderate comfort with your company's direction and their ability to execute, and feel like it can continue to grow more than the VOO then I'd keep it there. Otherwise sell it as soon as you can. I think I'm up something pretty nice like 44% on my DCA of my company stock plan. For now I'm holding until they release a negative earnings report.
My company stock spikes around earnings reports, then it seems to fizzle a bit until the next earnings call. So I'm debating whether I sell it all once it appears the spike has plateau'd then buy in again before earnings report. I'd be paying short term capital gains then, but I'd be earning more than that assuming the stock continues to go up, which can only happen for so long.
Posted on 6/12/24 at 4:11 pm to Merica
Not quite a free 15% because the discount is taxable income.
I wouldn't fully max out the 15k because I wouldn't want that many eggs in one basket. I'd definitely take advantage up to a certain point.
I wouldn't fully max out the 15k because I wouldn't want that many eggs in one basket. I'd definitely take advantage up to a certain point.
Posted on 6/12/24 at 4:18 pm to Merica
ESPPs generally are "free money". You can literally buy/sell and make 10-25% sometimes gross for the 6-month period. I've done ours for years and sold initially like that, then I said I'm dumb because the stock continued to go up and up significantly. And it's short-term capital gains. Eventually quit selling it. Now the issue is a disproportionate % of the non-retirement assets in 1 stock. But I know the fundamentals and it's one of the top "growth stocks" out there for the long haul. Have made a lot of money off of doing this.
In your case:
1. Do you want to risk that amount?
2. How strongly do you feel about the company to risk it?
You must hold the stock for 1 year from the purchase date before selling.
That's the rub for me. Ours let you sell it as soon as you take possession of the stock. Calculation period each 6-month period.
How much do you trust your company to grow earnings and what's the market's reaction to it? Do they consistently beat EPS forecasts? Not?
You can use some services to get a feel for what analysts that follow the company think. Yahoo Finance has a free site and provides some rudimentary charts and analyst opinions. I like our account at Fidelity in terms of research. Seeking Alpha is another good site.
Let us know!
In your case:
1. Do you want to risk that amount?
2. How strongly do you feel about the company to risk it?
You must hold the stock for 1 year from the purchase date before selling.
That's the rub for me. Ours let you sell it as soon as you take possession of the stock. Calculation period each 6-month period.
How much do you trust your company to grow earnings and what's the market's reaction to it? Do they consistently beat EPS forecasts? Not?
You can use some services to get a feel for what analysts that follow the company think. Yahoo Finance has a free site and provides some rudimentary charts and analyst opinions. I like our account at Fidelity in terms of research. Seeking Alpha is another good site.
Let us know!
This post was edited on 6/12/24 at 4:24 pm
Posted on 6/12/24 at 5:06 pm to Nole Man
I only have 1 period currently in my account (July 23 - December 23) and it is up 49%. I have only been doing $100/check since I started with the company. My second period is about to execute. I am making elections for my 3rd period which is why I am asking.
We have recently made some acquisitions that will help us continue to extend our foot print. I am in expansion projects, and just from how busy I am I feel like we are still full speed ahead.
We have beat EPS forecast 6 of the last 8 quarters.
This is my only hesitation. We currently have one young child and about to have another. I think we have things under control but I would be tying up more cash instead of potentially have the aforementioned $400/week if needed more liquid. Luckily we have established a decent savings so far so maybe that allows us to take the risk.
Just from reading all the replies here I’ll probably just start increasing my withholding amount little by little over the next couple years instead of pushing all in so it’s not super noticeable to our normal budget and keeps risk limited.
quote:
How much do you trust your company to grow earnings and what's the market's reaction to it? Do they consistently beat EPS forecasts? Not?
We have recently made some acquisitions that will help us continue to extend our foot print. I am in expansion projects, and just from how busy I am I feel like we are still full speed ahead.
We have beat EPS forecast 6 of the last 8 quarters.
quote:
1. Do you want to risk that amount?
This is my only hesitation. We currently have one young child and about to have another. I think we have things under control but I would be tying up more cash instead of potentially have the aforementioned $400/week if needed more liquid. Luckily we have established a decent savings so far so maybe that allows us to take the risk.
Just from reading all the replies here I’ll probably just start increasing my withholding amount little by little over the next couple years instead of pushing all in so it’s not super noticeable to our normal budget and keeps risk limited.
Posted on 6/12/24 at 5:21 pm to Merica
quote:
This is my only hesitation.
That's the conversation with the Ms. because if it performs well, the reality is you'll probably never want to get rid of it. Tax implications. You think it's going to continue to go up (it might, ours sure has). She'd have to know that "cash flow coming in is gone" realistically. Can you guys handle that financially and mentally? I just had that conversation about starting back into the plan (I returned work and wasn't eligible) in June. Some spirited conversations let's just say.
We have beat EPS forecast 6 of the last 8 quarters.
That's a great sign! Assuming it's publically traded, go to Yahoo Finance and plug in the symbol and go down to the Analysis section to see what analysts are thinking. Read some of the community forum comments. That'd at least give you some feeling on what the market thinks.
Posted on 6/12/24 at 5:36 pm to Merica
Couldn’t OP maximize the ESPP and write calls against the position?
Posted on 6/12/24 at 5:59 pm to Bestbank Tiger
quote:
Not quite a free 15% because the discount is taxable income.
One of the CPAs or accountants here can answer better, but I believe that the discount just gives a lower cost basis when you sell the stock. I participated in one years ago, and I don’t recall there being a taxable event until I sold the stock.
Posted on 6/12/24 at 6:07 pm to beaverfever
quote:
Couldn’t OP maximize the ESPP and write calls against the position?
Doubtful, because it probably wouldn’t be in a typical brokerage account that would allow option writing privileges.
I didn’t read through all the replies, but as he mentioned maxing this ESPP benefit ($15K/yr), I wondered what percentage of his equity portfolio or net worth would be in his company’s stock? I’ve had situations in the past where I was glad that my personal finances weren’t overly tied to the company’s finances. And if you leave (willingly or otherwise) while still owing for the stock purchase, you end up with either having to pay off the balance or being subject to a forced sale (akin to a margin call).
Posted on 6/12/24 at 7:39 pm to Jag_Warrior
FYI. I got canned last year and they just returned the money that was in my account that had gone towards the stock purchase plan. I had no obligation. I’m back at the same company now in a different role and will probably contribute starting July 1.
Posted on 6/12/24 at 7:51 pm to Jag_Warrior
quote:
One of the CPAs or accountants here can answer better, but I believe that the discount just gives a lower cost basis when you sell the stock. I participated in one years ago, and I don’t recall there being a taxable event until I sold the stock.
The discount itself is also taxable income. That caused nightmares for some people when the tech bubble burst.
Unless they changed it.
Posted on 6/12/24 at 8:31 pm to Nole Man
quote:
FYI. I got canned last year and they just returned the money that was in my account that had gone towards the stock purchase plan. I had no obligation. I’m back at the same company now in a different role and will probably contribute starting July 1.
So they didn’t actually purchase shares in your plan up front? I mean, your payroll deductions went into a cash account and then the company bought shares at some predetermined time?
We didn’t have any free cash in the plan I was in. The way ours worked, the employee selected a certain number of shares he wanted to buy (up to the max $ amount), the shares were bought, dividends were paid to the employee on the shares and the payroll deductions went to pay off what was essentially a loan from the company to buy the shares. But if you left the company for whatever reason, you either had to pay off the loan balance within a certain period of time or they’d sell enough shares to pay off the balance.
Posted on 6/12/24 at 9:08 pm to Jag_Warrior
Nope. It was just accrued in my Fidelity account. Got a separate check.
Posted on 6/12/24 at 9:34 pm to Nole Man
OK. Got what you meant now.
Posted on 6/13/24 at 8:00 am to Merica
Take the match. 15% is the same match my company offered. I held all of mine for years so long term cap gains on all of it when I cashed in.
Posted on 6/13/24 at 9:19 am to Merica
If your company has a relatively stable stock price then it's a pretty safe bet. If you work in a company that is prone to spikes and drops based on news cycles then I wouldn't go all the way in just yet.
I worked at a tech company that enjoyed a nice run through late 2021 with a sharp plummet in mid 2022, ended up buying a big chunk way too high and lost quite a bit of value. But overall I think I still came out ahead.
I worked at a tech company that enjoyed a nice run through late 2021 with a sharp plummet in mid 2022, ended up buying a big chunk way too high and lost quite a bit of value. But overall I think I still came out ahead.
Posted on 6/16/24 at 2:18 am to Thundercles
I had a similar opportunity and maxed it out.
Stock dropped 65% within the year I had to wait after buying.
Stock dropped 65% within the year I had to wait after buying.
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