Should I do this ESPP (with Computershare as the broker)?

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Amphian
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Joined: Tue Jan 30, 2018 9:37 pm

Should I do this ESPP (with Computershare as the broker)?

Post by Amphian » Sat Mar 17, 2018 11:50 pm

The Background:

I am starting a new job and will be eligible for the Employee Stock Purchase Plan in a few months. I don't buy and sell individual stocks usually - my holdings are all index mutual funds with no fees to trade. (VTSAX held at Vanguard, for example.) I have had stock options in previous jobs, and I have cashed them in when they vested and sold them immediately, but that's the extent of my individual stock trading experience. I am comfortable with holding funds long term, but less so with individual stocks.

The Plan:

There are two purchase periods per year with $12500 max per period for $25000 per year. The plan can only be funded through payroll contributions. There is no interest paid while they hold the money over the six months. There is a 15% discount off the lower of the two prices on the first and last days of the period.

After I contribute for six months, the stocks are not issued, but "held in an account by the company" for at least six months. While held in that company account, the dividends must be reinvested in company stock (with no discount on those purchases). I must apply to remove only a whole number of shares from the fund after those shares have been there at least six months. (It's not clear if I have to wait six additional months on the dividend shares or if I can ever remove the last partial share.)

From the plan: "The Plan is not an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended." I'm not sure if this is normal or not.

The plan is run through Computershare, about which I have seen uniformly negative reviews, including high fees to trade or move the stock elsewhere.

The Questions:

1. Anyone with experience with Computershare who can tell me if it's as bad as it seems?

2. If the shares aren't issued to me until I request a whole number of shares after six months, does this mean the clock on capital gains doesn't start until then?

3. Does this make sense as an investment? If I could buy at a 15% discount and immediately sell, this would make sense. If I ever wanted to purchase and hold stock in the company I work for, this would make sense. However I'm a bit hesitant to tie up 12 - 24 months (if I wait out capital gains) of investment money in my own company's stock (assuming the price is such that I want to sell at that time, and I'm not holding longer due to the market, and building up a bigger percentage of my total assets in one stock).

4. Am I better off taking the money I would invest in this, opening a taxable brokerage account somewhere, and just sticking with index mutual funds? This money will get invested and it's separate from the HSA, 401K and 401K catch up, which will all be fully funded, so it's not a matter of "Do I do the ESPP or spend the money on glitter and ponies?" but "Is the ESPP a better or worse investment for this money than other options?"

Thanks in advance just for reading that wall of text. :)

Nate79
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by Nate79 » Sun Mar 18, 2018 12:05 am

Nope. To me it's not worth the hassle. Tie up $25k for a potential gain of 15% minus taxes is peanuts benefit for too much risk. The holding period is too long and the discount is not enough to do it.

annielouise
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by annielouise » Sun Mar 18, 2018 6:45 am

Every company seems to have a different deal with Computershare, so you should review provided documents for exact terms, although most are not good.

Your plan sounds like a lot of trouble and risk. I would skip it if it were me.

Dudley
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by Dudley » Sun Mar 18, 2018 6:49 am

I do this. I just sell asap to take the guaranteed 15%. Computershare will suffice for this exercise.

MidMNtom
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by MidMNtom » Sun Mar 18, 2018 11:47 am

Amphian wrote:
Sat Mar 17, 2018 11:50 pm
The Background:

I am starting a new job and will be eligible for the Employee Stock Purchase Plan in a few months. I don't buy and sell individual stocks usually - my holdings are all index mutual funds with no fees to trade. (VTSAX held at Vanguard, for example.) I have had stock options in previous jobs, and I have cashed them in when they vested and sold them immediately, but that's the extent of my individual stock trading experience. I am comfortable with holding funds long term, but less so with individual stocks.

was in a identical plan for a mega corp and it worked out just find. Same limitations and with same administrator.

It wasnt particularly convenient, but it was nice getting the auto discount.

I stayed in for 15 years before I was involved in a reduction in force and it was nice to get the check without really feeling the pain of buying a single stock.

I had sold a few times intermitently, but not often.

This and one other stock were the only individual shares I owned, so I didnt think it too risky.

I was buying about 5-7% of income and not the 15% or so max.


Best of luck!

outbackcountry
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by outbackcountry » Sun Mar 18, 2018 12:30 pm

ComputerShare is just a service provider. Many workplace ESPP have tied-up with ComputerShare. They are ok (website may not be great but suffice) with good CS (they will answer the call and respond with answers if you need any help. I have found them knowledgeable as well). ESPP decision should be based on - if the stock itself is fundamentally sound (have growth potential), discounts on the share price you are entitled to, vesting period and other terms. If terms are good (meaning immediate vesting, etc..), I would vote for buying into ESPP depending on the discount. As others have suggested, I would sell after it qualifies for the long term holding period. If its one of DJ 30 or S&P 500, I may hold it for longer period and participate regularly because of the discounts.

libralibra
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by libralibra » Mon Mar 19, 2018 12:32 am

Since you get 15% off the lower of the start and end prices, you could end up saving a lot more than 15%. E.g. if the stock goes from 100 to 120, you still pay only 85, so you really save almost 30%.

Usually you would always want to take this deal. However, since you have a 6 month holding period, then it's no longer risk-free. You have to consider how volatile your stock is, e.g. if it could lose 20-30% in a bad quarter.

Amphian
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by Amphian » Mon Mar 19, 2018 6:32 am

libralibra wrote:
Mon Mar 19, 2018 12:32 am
Since you get 15% off the lower of the start and end prices, you could end up saving a lot more than 15%. E.g. if the stock goes from 100 to 120, you still pay only 85, so you really save almost 30%.

Usually you would always want to take this deal. However, since you have a 6 month holding period, then it's no longer risk-free. You have to consider how volatile your stock is, e.g. if it could lose 20-30% in a bad quarter.
That puts it in perspective. I could also lose half in six months even after the discount. The worst fall I see in a 6 month period is 60%, and there are periods where I would have had to have held the stock for 2 - 4 years in order to not lose money - even with the 15% discount. The numbers are worse if I count holding a full year to wait out capital gains.

If there were no holding period, I would take the deal - no question. I have decent risk tolerance for buying and holding mutual funds. I find I have far less risk tolerance for individual stocks with a hold period, where the idea is to flip them and to have to hope the market timing for the six months or year is favorable. If I ever decide I want to buy and hold this stock, I would use the ESPP to do it.

Thanks to everyone who responded!

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samsoes
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by samsoes » Mon Mar 19, 2018 6:47 am

The long holding period is a deal-breaker for sure.
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libralibra
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by libralibra » Mon Mar 19, 2018 12:46 pm

If you have some faith in your company's future, I suppose you could play a mental trick and just say you will take the risk on holding 1 or 2 batches of shares "forever", while selling each new batch immediately for the 15%+ risk-free gains. What you are really doing, of course, is more like laddering and selling each batch in order, but you will "feel" like you are getting the 15%+ gains with no risk (because mentally you have shifted 100% of the risk to the batch you are "holding").

Picking winners is definitely tough, though. With my first two ESPPs, I would buy and hold. Ended up losing 50-99% when the companies went under. So with the 3rd ESPP I would sell within days. That company was eventually bought out for 2-3x my various purchase prices so I left a lot of money on the table.

Easy Rhino
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by Easy Rhino » Mon Mar 19, 2018 4:46 pm

my company's espp is with computershare. Their website is pretty lame, I don't like the way they present their cost basis and history, and I get charged $30 each time I sell. At least they added a direct deposit option instead of mailing checks somewhat recently.

The 6 month waiting period before you even get the stock is uncomfortable if you need that money to pay bills. But at least there's no market risk.

But the 6 month holding period afterwards is... ick. it's just plain risk, and it depends on how comfortable you are with it (i wouldn't hold onto the shares an additional 6 months or 1.5 years to get any benefit on tax treatment btw). it sounds like your company's stock is somewhat volatile so that makes it more exciting.

I'm able to sell immediately, and I do. Ironically my company's stock has performed quite well since the financial crisis, and also quite well over the last 20 years or so. so if I held onto it I'd look like a genius!

Amphian
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by Amphian » Mon Mar 19, 2018 5:45 pm

My last company did have an ESPP for part of the time that I was there, that I did not participate in due to needing the money for other things at the time. The stock ended up being bought out low by a private equity firm, and everyone who had been doing the ESPP (who had been holding as the stock crept down) was furious. Everyone definitely should have flipped ASAP, but I think people felt if they just held on a little longer...

Amphian
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Re: Should I do this ESPP (with Computershare as the broker)?

Post by Amphian » Fri Mar 23, 2018 7:18 pm

Well, if I had any thoughts about doing this, my first interaction with Computershare was enough to make up my mind. I got a letter from them about setting up my account. The login from the web didn't work. The login from the phone didn't work. The humans I eventually spoke to were polite but unhelpful and not bright. They suggested that maybe I was sent the wrong information and I would not be able to use the web or the automated phone service, but maybe someone next week could help me if I wanted to call back. They then tried to pressure me for signing up for the ESPP, saying I could just call and talk to a human to get balance information and do trades, if the phone and web systems never ended up working :shock: .

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