How do you approach your ESPPs

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kamikazekid
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How do you approach your ESPPs

Post by kamikazekid » Thu Jun 22, 2017 8:47 am

Dear Bogleheads,
I am having trouble understanding how I should treat or view my Employee Purchase Plan. I do not understand its place in my portfolio.
Specifically, I would like to know whether

1) The $ invested in ESPP should be considered as a long term investment (e.g. 401k) or whether I should view it as a short term investment or perhaps somewhere in between the emergency fund and the retirement accounts.
2) Whether it is better to "lock in " your gains and then move the money to a safer alternative such as a CD and park that cash for major purchases
3) Any thumb rules around what % of the overall portfolio is considered ok for the ESPP.

Background: Expecting to purchase a home within the next 2 to 3 years in the range of $600-650k. I am trying to ensure I have enough cash for a 20% downpayment and wonder if I should tap into my ESPP as a source of cash. I work for https://finance.yahoo.com/quote/BSX?ltr=1. The stock is trading at around a 5 year high. The company has strong management, great potential and strong market presence. Of course, no one knows what will happen next. I am well versed with the Boglehead investing philosophy. Hence the unease about having around $18k of unrealized gains in my ESPP. My overall portfolio 401k, IRA, Brokerage is around $235k

Thank you.

centrifuge41
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Re: How do you approach your ESPPs

Post by centrifuge41 » Thu Jun 22, 2017 8:55 am

Tell us more about your ESPP. Like, the amount of discount, holding period, amount you can participate with, etc.
I use mine as a churn-through, equivalent to an additional 2.6% of salary. No reason to hold long term with mine. Completely compatible with monthly/yearly budgets, and as a churn-through, doesn't interfere with other savings goals (401k, down pay, etc).

lazydavid
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Re: How do you approach your ESPPs

Post by lazydavid » Thu Jun 22, 2017 8:58 am

I sell 100% of my ESPP shares upon purchase and RSUs upon vesting. Proceeds from both go into my taxable account, which is my "money I don't have a current use for" bucket. At some point, that account will be drawn upon to purchase cars and put my son through College. It also serves as additional emergency funds (though most BH would argue against its relatively aggressive AA in this regard) Most everything else will probably wind up being additional retirement funds.

From my perspective, 100% of my household income is dependent on my employer. There's no good reason I should have an above-market-weight allocation to their stock in my portfolio on top of this.

aceoperations
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Re: How do you approach your ESPPs

Post by aceoperations » Thu Jun 22, 2017 9:18 am

Would you buy your company stock using cash you have in hand now? If not, no reason to hold on to your ESPP. In my view, I'm already heavily dependant on my company's performance for my salary. No need for my portfolio to rely on it as well.

NancyABQ
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Re: How do you approach your ESPPs

Post by NancyABQ » Thu Jun 22, 2017 9:29 am

My plan has 15% discount, 12 month period, purchase every 6 months and can sell immediately. I think this is a fairly typical good plan. Some plans are worse.

I don't even consider the money as part of my portfolio until I have sold the shares (which I do as soon as possible after acquiring them). At that point I consider it just like a cash bonus.

After that, the cash goes into my portfolio wherever needed. For my case, it goes into my taxable brokerage account and gets invested in Total Stock Index. For somebody else, it might be part of emergency fund or cash savings -- at this point it is just cash that needs to be allocated according to your current needs.

This is also how I treat RSUs -- they don't even show up in my portfolio accounting until I have actually sold the shares, which I do immediately upon vesting. At this point I treat it as a bonus and invest accordingly.

FootballFan5548
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Re: How do you approach your ESPPs

Post by FootballFan5548 » Thu Jun 22, 2017 9:30 am

lazydavid wrote:I sell 100% of my ESPP shares upon purchase and RSUs upon vesting. Proceeds from both go into my taxable account, which is my "money I don't have a current use for" bucket. At some point, that account will be drawn upon to purchase cars and put my son through College. It also serves as additional emergency funds (though most BH would argue against its relatively aggressive AA in this regard) Most everything else will probably wind up being additional retirement funds.

From my perspective, 100% of my household income is dependent on my employer. There's no good reason I should have an above-market-weight allocation to their stock in my portfolio on top of this.

Just to contrast your point, I work for a specialty insurance company. Have been receiving RSU's, Options, and paying about 3% of salary into ESPP every month for the past 10 years. I never sold any of the holdings (with one minor exception when we purchased a house 5 years ago and I exercised options).

We were just acquired for a 40% premium over share price and the closing is going to happen in the next month or so. I never really counted these shares/investments as part of my portfolio... they were always just sort of there.... but I'm sure happy I held onto them that whole time and didn't sell/exercise. This amounted to a major windfall for me and my family, several hundred thousands dollars, that I had never really thought about before.

If you believe in your company (like I did) and you are offered ESPP at a discount (we could buy at 15% discount to stock price), then I think ESPP is a great forced savings plan or rainy day fund. It was taken out 3% from every paycheck, I never really missed it, and it sure did accumulate quickly.


Just one other note - my company is technically foreign. For years, my AA showed my international equities as the largest single holding in my portfolio. It always threw me off, and once the deal closes and the shares are cashed in, I'll need to reallocate my entire equity position to get the proper AA.

mak1277
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Re: How do you approach your ESPPs

Post by mak1277 » Thu Jun 22, 2017 9:39 am

FootballFan5548 wrote:
lazydavid wrote:I sell 100% of my ESPP shares upon purchase and RSUs upon vesting. Proceeds from both go into my taxable account, which is my "money I don't have a current use for" bucket. At some point, that account will be drawn upon to purchase cars and put my son through College. It also serves as additional emergency funds (though most BH would argue against its relatively aggressive AA in this regard) Most everything else will probably wind up being additional retirement funds.

From my perspective, 100% of my household income is dependent on my employer. There's no good reason I should have an above-market-weight allocation to their stock in my portfolio on top of this.

Just to contrast your point, I work for a specialty insurance company. Have been receiving RSU's, Options, and paying about 3% of salary into ESPP every month for the past 10 years. I never sold any of the holdings (with one minor exception when we purchased a house 5 years ago and I exercised options).

We were just acquired for a 40% premium over share price and the closing is going to happen in the next month or so. I never really counted these shares/investments as part of my portfolio... they were always just sort of there.... but I'm sure happy I held onto them that whole time and didn't sell/exercise. This amounted to a major windfall for me and my family, several hundred thousands dollars, that I had never really thought about before.

If you believe in your company (like I did) and you are offered ESPP at a discount (we could buy at 15% discount to stock price), then I think ESPP is a great forced savings plan or rainy day fund. It was taken out 3% from every paycheck, I never really missed it, and it sure did accumulate quickly.


Just one other note - my company is technically foreign. For years, my AA showed my international equities as the largest single holding in my portfolio. It always threw me off, and once the deal closes and the shares are cashed in, I'll need to reallocate my entire equity position to get the proper AA.
For every story like this, there's a story about someone who kept all their options and ESPP in company stock and ended up with nothing.

This is entirely a question about risk tolerance and asset allocation. Do you hold individual company stocks in your portfolio? If not, then why is your employer's stock any different? There isn't a right or wrong answer as long as you're being true to your personal desired portfolio and AA.

lazydavid
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Re: How do you approach your ESPPs

Post by lazydavid » Thu Jun 22, 2017 9:59 am

FootballFan5548 wrote:Just to contrast your point, I work for a specialty insurance company. Have been receiving RSU's, Options, and paying about 3% of salary into ESPP every month for the past 10 years. I never sold any of the holdings (with one minor exception when we purchased a house 5 years ago and I exercised options).

We were just acquired for a 40% premium over share price and the closing is going to happen in the next month or so. I never really counted these shares/investments as part of my portfolio... they were always just sort of there.... but I'm sure happy I held onto them that whole time and didn't sell/exercise. This amounted to a major windfall for me and my family, several hundred thousands dollars, that I had never really thought about before.

If you believe in your company (like I did) and you are offered ESPP at a discount (we could buy at 15% discount to stock price), then I think ESPP is a great forced savings plan or rainy day fund. It was taken out 3% from every paycheck, I never really missed it, and it sure did accumulate quickly.


Just one other note - my company is technically foreign. For years, my AA showed my international equities as the largest single holding in my portfolio. It always threw me off, and once the deal closes and the shares are cashed in, I'll need to reallocate my entire equity position to get the proper AA.
Taking on a large amount of non-systematic risk paid off for you, and that's great. But that doesn't mean you weren't taking unnecessary risk, any more than people who took those same amounts of money and invested it in Amazon....or Enron.

I absolutely do believe in my company. It's conservative, stable, and highly profitable. We would not have two salaries coming from there if I didn't. But that doesn't mean it's a wise decision to have all of my current AND a large portion of my future income tied to their continued success.

Your "forced savings" has nothing to do with holding the stock after purchase. My setup accomplishes EXACTLY the same goal. The money is taken out of my paycheck before I see it, and I've "backed out" all of our increases over the past 5 years or so, first by maxing out both 401ks, then by increasing ESPP. Annual increases are coming in August, so the amount will be going up again, but currently I'm withholding approximately 25% of my POST-tax income, on top of the 15% of pre-tax going into 401k. And though there's nothing elective about RSUs, they still fall into the category of money I "never had", so just like the ESPP, it doesn't "hurt" when I move it into taxable. The only difference is I immediately transfer mine into a brokerage account, where it is liquidated and reinvested according to my desired risk profile.

The market return on said taxable account has been 27% since January of last year (24% on a money-weighted basis), so I also don't feel like I've missed out on any windfalls by eliminating unnecessary single-company risk. Again, I'm glad it worked out for you, but still disagree with your reasoning.

KlangFool
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Re: How do you approach your ESPPs

Post by KlangFool » Thu Jun 22, 2017 10:04 am

OP,

Do not put most of your eggs in one basket. Remember Enron.

KlangFool

Dandy
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Re: How do you approach your ESPPs

Post by Dandy » Thu Jun 22, 2017 10:12 am

When I had ESPPs their was a period when if you sold, the discount I believe counted as income vs cap gain. The strategy was to sell as soon as any gain was considered a long term capital gain. I believe that period was 2 years. So I bought every year and held for 2 years and took the long term cap gain. This occurred while the company stock was going up and I was glad I did because in 2008-9 the stock went from 120 to 8 and I lost my job. Lots of associates had way too much company stock and many held on most of the way down.

You often have much more tied up in your company than you realize e.g. employment, health insurance, bonuses, 401k matches, etc. Too much company stock can make you rich or make you weep. That is why most Bogleheads don't favor individual stocks. So I say buy some, take the gain when it is long term.

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Hyperborea
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Re: How do you approach your ESPPs

Post by Hyperborea » Thu Jun 22, 2017 11:35 am

Dandy wrote:When I had ESPPs their was a period when if you sold, the discount I believe counted as income vs cap gain. The strategy was to sell as soon as any gain was considered a long term capital gain. I believe that period was 2 years. So I bought every year and held for 2 years and took the long term cap gain. This occurred while the company stock was going up and I was glad I did because in 2008-9 the stock went from 120 to 8 and I lost my job. Lots of associates had way too much company stock and many held on most of the way down.
I had ESPP plans at a few companies that I worked for and it depended on the company on whether I took the approach of waiting for the 15% to turn into long term capital gain. There was one that I wasn't sure if they would be around long and so all the ESPP stock got sold as soon as I could. It was a good choice too since they ended up laying off more than half the company before finally going bankrupt.

If you do want to convert to long term capital gains, I believe that you need to sell after you have held the stock for 1 year AND it must be 2 years after the start of the ESPP period in which the stock was purchased. For example, one of the companies that I worked for that I figured would still be there and that I would risk waiting had a 6 month ESPP purchase window. So, that means that when I got the stock I needed to wait 18 months - that was over 1 year since I received the stock but just 2 years from the start of the ESPP period (6 month purchased period + 18 months waiting).

In a quick check it seems that my memory of the rules is correct - https://turbotax.intuit.com/tax-tools/t ... 12047.html

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BeBH65
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Re: How do you approach your ESPPs

Post by BeBH65 » Thu Jun 22, 2017 11:36 am

Hello Kamikaze,

You have already received a lot of good advise.
In your OP you are actually asking many questions.
kamikazekid wrote:Dear Bogleheads,
I am having trouble understanding how I should treat or view my Employee Purchase Plan.
I do not understand its place in my portfolio. summary: it is an individual stock, and also your "human capitl" is tied to it.
Specifically, I would like to know whether

1) The $ invested in ESPP should be considered as a long term investment (e.g. 401k) or whether I should view it as a short term investment or perhaps somewhere in between the emergency fund and the retirement accounts.
Stocks are always long term. The stockmarket can loose 50% in a year and take a long time to recover. Individual stocks can loose 90% of their value and possibly never recover.

2) Whether it is better to "lock in " your gains Many on this forum do not like individual stsocks, even more people on this forum do not like individual stocks that is also your employer. If an ESPP has a nice discount and a very short holding period then one could consider taking the risk related to this for the days that one needs to hold it.
and then move the money to a safer alternative such as a CD and park that cash for major purchasesor whatever your AA calls for.
3) Any thumb rules around what % of the overall portfolio is considered ok for the ESPP. In general this forum advises not to have more then 5% play money in individual stocks

Background: Expecting to purchase a home within the next 2 to 3 years in the range of $600-650k. I am trying to ensure I have enough cash for a 20% downpayment and wonder if I should tap into my ESPP as a source of cash. Money for short/medium term goals like this should not be invested in stock, you should choose a much less volatile investment or saving - have a look a the other threads on this in the forum.
I work for https://finance.yahoo.com/quote/BSX?ltr=1. The stock is trading at around a 5 year high. Correct, If I compare your stock with the S&P500 over 5 years your company has done a lot better. If I compare with the maximum on my charting tool 1993 then your stock and the s&p500 did about the same, with the s&p500 a lot less volatility--> maybe a good moment to sell? The company has strong management, great potential and strong market presence. yes, and you can assume that the professional stock traders know this and have included that in the current stock price Of course, no one knows what will happen next. I am well versed with the Boglehead investing philosophy. Hence the unease about having around $18k of unrealized gains in my ESPP. Maybe a good time to sell? My overall portfolio 401k, IRA, Brokerage is around $235k

Thank you.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

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DaftInvestor
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Re: How do you approach your ESPPs

Post by DaftInvestor » Thu Jun 22, 2017 11:49 am

OP:
Provided there is no holding period after the purchase is made I would sell 100% immediately (of course this assume you get a discount on the purchase price making it worthwhile). From this perspective - I disagree with a prior response that said because this is a stock you should consider it long term - I always simply considered ESPP extensions to my salary - just like a bonus or RSUs or options. Take the money and reinvest it elsewhere. Sounds like you have been holding the shares up to this point - I'd definitely sell 100% now (while continuing to invest in the next period).
IF there is no holding period then the risk of loss is very very low (only if the stock tanked overnight between the purchase day and when you can sell it do you have a problem - very unlikely) then you should max-out whatever you can afford to put in. Its practically money in the bank. The "5%" mentioned by a prior-poster doesn't really apply since you aren't planning on keeping it.

I know a lot of folks who held onto their ESPP, Options, RSUs, etc. too long and then regretted it when they saw all their gains vanish.

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BeBH65
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Re: How do you approach your ESPPs

Post by BeBH65 » Thu Jun 22, 2017 12:03 pm

I fully agree with daftinvestor, especially related to your future ESPP purchases.
For you current holding with "$18k of unrealized gains in my ESPP", yes sell them all and immediately.
If you do not do that, ensure that they are less then 5% of your portfolio and consider the stock as long term very volatile stock investments.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

kamikazekid
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Re: How do you approach your ESPPs

Post by kamikazekid » Fri Jun 23, 2017 1:28 pm

centrifuge41 wrote:Tell us more about your ESPP. Like, the amount of discount, holding period, amount you can participate with, etc.
I use mine as a churn-through, equivalent to an additional 2.6% of salary. No reason to hold long term with mine. Completely compatible with monthly/yearly budgets, and as a churn-through, doesn't interfere with other savings goals (401k, down pay, etc).
I get a 15% discount and have a holding period of 6 months after purchase (I think, will have to check this again). The discount applies based on the lowest value of the stock during a 6 month interval between Jan-June and Jul-Dec. I have stopped participating in the plan as of last year since I realized that I had excessive weightage as compared to my overall portfolio. thanks,

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DaftInvestor
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Re: How do you approach your ESPPs

Post by DaftInvestor » Fri Jun 23, 2017 1:31 pm

kamikazekid wrote:
centrifuge41 wrote:Tell us more about your ESPP. Like, the amount of discount, holding period, amount you can participate with, etc.
I use mine as a churn-through, equivalent to an additional 2.6% of salary. No reason to hold long term with mine. Completely compatible with monthly/yearly budgets, and as a churn-through, doesn't interfere with other savings goals (401k, down pay, etc).
I get a 15% discount and have a holding period of 6 months after purchase (I think, will have to check this again). The discount applies based on the lowest value of the stock during a 6 month interval between Jan-June and Jul-Dec. I have stopped participating in the plan as of last year since I realized that I had excessive weightage as compared to my overall portfolio. thanks,
Rather than stopping your participation you should be selling what you have and re-buying at the 15% discount.

kamikazekid
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Re: How do you approach your ESPPs

Post by kamikazekid » Fri Jun 23, 2017 1:38 pm

DaftInvestor wrote:OP:
Provided there is no holding period after the purchase is made I would sell 100% immediately (of course this assume you get a discount on the purchase price making it worthwhile). From this perspective - I disagree with a prior response that said because this is a stock you should consider it long term - I always simply considered ESPP extensions to my salary - just like a bonus or RSUs or options. Take the money and reinvest it elsewhere. Sounds like you have been holding the shares up to this point - I'd definitely sell 100% now (while continuing to invest in the next period).
IF there is no holding period then the risk of loss is very very low (only if the stock tanked overnight between the purchase day and when you can sell it do you have a problem - very unlikely) then you should max-out whatever you can afford to put in. Its practically money in the bank. The "5%" mentioned by a prior-poster doesn't really apply since you aren't planning on keeping it.

I know a lot of folks who held onto their ESPP, Options, RSUs, etc. too long and then regretted it when they saw all their gains vanish.
Can you elaborate on why I should continue to invest? Is it purely to bank the 15% discount of the purchase prices? In other words, even if the stock stays where it is, I have locked in a 15% gain. If stock appreciates, its gravy on top. I will only be at a loss if it depreciates more than 15%. That is my understanding of your statement. Appreciate any clarification. :sharebeer

Gufomel
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Re: How do you approach your ESPPs

Post by Gufomel » Fri Jun 23, 2017 1:42 pm

kamikazekid wrote:
centrifuge41 wrote:Tell us more about your ESPP. Like, the amount of discount, holding period, amount you can participate with, etc.
I use mine as a churn-through, equivalent to an additional 2.6% of salary. No reason to hold long term with mine. Completely compatible with monthly/yearly budgets, and as a churn-through, doesn't interfere with other savings goals (401k, down pay, etc).
I get a 15% discount and have a holding period of 6 months after purchase (I think, will have to check this again). The discount applies based on the lowest value of the stock during a 6 month interval between Jan-June and Jul-Dec. I have stopped participating in the plan as of last year since I realized that I had excessive weightage as compared to my overall portfolio. thanks,
That's an excellent plan. Especially the discount applying to the lowest price of the stock during the 6 month interval). That can effectively result in well more than a 15% discount.

I'm assuming you can contribute up to 10% of your salary to the ESPP? Not only have you been taking on significant non-systematic risk by holding on onto your shares, by stopping participating for the past year you're now missing out on income equal to approximately 1.5% x your salary (10% you can contribute x the 15% discount; not to mention the potential extra discount based on the lowest value of the stock during the year). There's contribution limits on ESPPs, so depending on your salary level it may not be actually 1.5% x your salary, but the principle remains.

Cash in some (or all) of your previously purchased shares and start re-contributing to the ESPP ASAP.

Gufomel
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Re: How do you approach your ESPPs

Post by Gufomel » Fri Jun 23, 2017 1:44 pm

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Gufomel
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Re: How do you approach your ESPPs

Post by Gufomel » Fri Jun 23, 2017 1:48 pm

kamikazekid wrote:
DaftInvestor wrote:OP:
Provided there is no holding period after the purchase is made I would sell 100% immediately (of course this assume you get a discount on the purchase price making it worthwhile). From this perspective - I disagree with a prior response that said because this is a stock you should consider it long term - I always simply considered ESPP extensions to my salary - just like a bonus or RSUs or options. Take the money and reinvest it elsewhere. Sounds like you have been holding the shares up to this point - I'd definitely sell 100% now (while continuing to invest in the next period).
IF there is no holding period then the risk of loss is very very low (only if the stock tanked overnight between the purchase day and when you can sell it do you have a problem - very unlikely) then you should max-out whatever you can afford to put in. Its practically money in the bank. The "5%" mentioned by a prior-poster doesn't really apply since you aren't planning on keeping it.

I know a lot of folks who held onto their ESPP, Options, RSUs, etc. too long and then regretted it when they saw all their gains vanish.
Can you elaborate on why I should continue to invest? Is it purely to bank the 15% discount of the purchase prices? In other words, even if the stock stays where it is, I have locked in a 15% gain. If stock appreciates, its gravy on top. I will only be at a loss if it depreciates more than 15%. That is my understanding of your statement. Appreciate any clarification. :sharebeer
Correct. Can you sell the shares immediately after they're purchased, or is there a holding period? If no holding period, you are exposed to virtually no risk and can lock in a gain of at least 15% of your contribution. There is not enough time for the stock to (significantly) appreciate or depreciate, because you sell it immediately after the purchase occurs. The only risk you are exposed to is the potential few days it takes for the sale transaction to be completed after the shares are purchased.

centrifuge41
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Re: How do you approach your ESPPs

Post by centrifuge41 » Fri Jun 23, 2017 1:50 pm

Awesome plan! How much can you contribute? If 10% of your salary, then the plan is worth an additional 1.7% on your salary, or more (e.g. if the stock went up). If 15% of your salary, that plan is +2.6% or more on your salary.

You do well to contribute the max, and sell asap after each holding period. You hopefully have enough coming in to max that out, and the 401k. The stocks that you sell off each period goes right back to your down payment fund. There's no reason to retain the stocks past that period. But you do want to use the ESPP since you'll end up more in each 6 month period by "churning through" than by doing nothing.

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DaftInvestor
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Re: How do you approach your ESPPs

Post by DaftInvestor » Fri Jun 23, 2017 1:50 pm

kamikazekid wrote:
DaftInvestor wrote:OP:
Provided there is no holding period after the purchase is made I would sell 100% immediately (of course this assume you get a discount on the purchase price making it worthwhile). From this perspective - I disagree with a prior response that said because this is a stock you should consider it long term - I always simply considered ESPP extensions to my salary - just like a bonus or RSUs or options. Take the money and reinvest it elsewhere. Sounds like you have been holding the shares up to this point - I'd definitely sell 100% now (while continuing to invest in the next period).
IF there is no holding period then the risk of loss is very very low (only if the stock tanked overnight between the purchase day and when you can sell it do you have a problem - very unlikely) then you should max-out whatever you can afford to put in. Its practically money in the bank. The "5%" mentioned by a prior-poster doesn't really apply since you aren't planning on keeping it.

I know a lot of folks who held onto their ESPP, Options, RSUs, etc. too long and then regretted it when they saw all their gains vanish.
Can you elaborate on why I should continue to invest? Is it purely to bank the 15% discount of the purchase prices? In other words, even if the stock stays where it is, I have locked in a 15% gain. If stock appreciates, its gravy on top. I will only be at a loss if it depreciates more than 15%. That is my understanding of your statement. Appreciate any clarification. :sharebeer
Why you should continue to invest: You get a 15% discount every 6 months. Getting the stock at a 15% discount actually means you are getting a 17.6% gain on your investment (If you buy $100 at $85 and sell immediately you have made 100/85). You do this twice a year for a 35% annual gain for the money you are tying up . The gain is actually higher because you are participating throughout the pay-period (e.g. the full sum of your money isn't tied up from the beginning of the 6-month period) but ignoring this - is there anywhere else you can get a 35% annualized gain on your money?? If the fear is that you haven't been selling and are holding too much stock sell what you have and re-buy over the year to restart that initial gain. Now that you mentioned you might have a 6-month holding period AFTER you buy the stock that does add some amount of risk but even if so, its hard to look away from this type of gain.

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rocket354
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Re: How do you approach your ESPPs

Post by rocket354 » Fri Jun 23, 2017 2:03 pm

My approach, and its reasons, are pretty much a summary of what other posters have already addressed.

I max out my ESPP. I can put in 10% of my salary, and receive a 15% discount with a 6-month lookback. I can sell immediately upon purchase at the end of the 6-month period.

I do in fact sell immediately, due to the reasons discussed (high-risk, lots of eggs in one basket, etc) and I enjoy that I got a 2.3% biweekly IRR (~80% annualized IRR) and then throw the money into other investments.

That is probably the optimal way to handle the situation, unless you have very specific and little-known information about your company.

core4portfolio
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Re: How do you approach your ESPPs

Post by core4portfolio » Fri Jun 23, 2017 2:11 pm

I have close of 980 share of ESPP with 65k and sold all of them last week. Thinking on putting in VTSAX
I sold primarily since there are lot of uncertainty and dont want to hold it for long term.
I can contribute 15% of salary and company will give 10% of fair market value on 1 or last day of quarter
Still iam enrolled for next batch
Just lock the gains and move on. I see ESPP now as additional bonus iam getting once in 3 months.
Most of the people sell asap once they got it.. iam moving towards that direction
Allocation : 80/20 (80% TSM, 20% TBM) | Need to learn fishing sooner

sreynard
Posts: 198
Joined: Thu May 02, 2013 8:11 pm

Re: How do you approach your ESPPs

Post by sreynard » Fri Jun 23, 2017 3:05 pm

Can you elaborate on why I should continue to invest? Is it purely to bank the 15% discount of the purchase prices? In other words, even if the stock stays where it is, I have locked in a 15% gain. If stock appreciates, its gravy on top. I will only be at a loss if it depreciates more than 15%. That is my understanding of your statement. Appreciate any clarification. :sharebeer
"Is it purely to bank the 15% discount of the purchase price?"

Yes! Yes! Yes! Would you turn down a pay raise too? "No boss, I really don't want any more money. . . ." You get free money for letting them hold some of your money for a few months. For just a little financial discipline you get one of the best low risk investment returns available anywhere. :oops:

Just a side note, if you held onto the stock for 10 years and sold it for a 40% gain, my trusty calculator says that would be a 3.4% annual return Not bad, but hardly spectacular and done with a heck of a lot of risk. Compare the risk and return for selling immediately.

My father used to hold all his company stock as well. It was fairly low for decades, high for a decade, and then collapsed back to earth again for over a decade now. He recently retired a couple of years ago, and after about 40 years with the company, the current price is below his average price. If he hadn't received a small dividend all those years, he would have lost money on the deal. This was a big company. You would absolutely know its name. It was very conservatively run and a very highly respected company going back to the 30's. It's currently trading in the teens and shows absolutely no signs of ever recovering.

We never know what the future holds, but we do know that putting a lot of eggs in one basket is an incredibly risky thing to do. Companies die just like people do. Sometimes they can linger on their death beds for years before recovering or fading away. Sometimes it works out well to hold through thick and thin, but it is generally a far better deal to just sell it immediately and invest it according to your plan.

I use mine to fund our Roth's. One for me, one for her. Works out pretty well. :sharebeer

Dottie57
Posts: 2386
Joined: Thu May 19, 2016 5:43 pm

Re: How do you approach your ESPPs

Post by Dottie57 » Fri Jun 23, 2017 4:59 pm

When I had a mortgage, I would buy the espp stock, sell it asap and then apply proceeds to my mortgage. Forced savings with decent earnings lowering my mortgage.

kamikazekid
Posts: 56
Joined: Sun Apr 05, 2015 5:15 pm

Re: How do you approach your ESPPs

Post by kamikazekid » Sat Jun 24, 2017 6:46 am

Thank you , thank you , thank you. I think I have a plan and more important, now I understand the various options in front of me as well as how to maximize gains while reducing risks. Thanks again !

There is a reason I tell my friends that bogleheads is the best site on the internet :happy World class advice at your fingertips

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