I hadn't been participating in my employer's lackluster ESPP, but a recent change in it has prompted me to take a second look. It still isn't great, and I'm leaning towards continuing to invest elsewhere, but I wanted to get some other opinions. The details of the ESPP are:
- Contributions are withheld from pay on a monthly basis.
- Stock is purchases every three months.
- Purchases receive a 5% discount.
- No holding period.(This is the point that just recently changed from a six month holding requirement)
- $25 fee for selling shares.
From when I did some rough calculations based on the share price and the discount, it seems like the $25 fee would negate a large chunk of the 5% discount if I were to sell the shares after every purchase. Taking taxes out of the sale would further reduce the benefit down to the point where I'm really only getting the equivalent of 2.1% return, assuming no share price fluctuations in the time between buying and selling. However, holding it longer to reduce the fees increases the risk of price fluctuations rendering the discount pointless. Without a significant benefit, I'll take the same funds I'd use here and just invest them in my taxable accounts.(All available tax-advantaged accounts are already being maxed out) I don't have any immediate or designated need for the money, so if I invest in taxable, it will hopefully sit for years at least. I'm not adept enough at analysis to determine the impact of the money sitting for 1-2 months(Purchased at the end of the 3rd month) before each purchase, earning no interest.
The numbers I used for my analysis are below, with numbers rounded/estimated for ease of math:
Funds for purchase every three months: $1200
Share price: $30 - 5% = $28.50
Shares purchased = 42.1
Sale proceeds = $1263 - $25 = $1238
Pre-tax return = $38
Post-tax return = $38 * 66.5% = $25.27
Return percentage = $25.27 / $1200 = 2.1%
Impact of quarterly purchases vs monthly = ???