Is this ESPP worth it?

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Trying2learn
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Is this ESPP worth it?

Post by Trying2learn »

My mega corp offers an ESPP plan that goes like this: six-month offering period, with 5% discount on the purchase date (last day of offering period). There is no mention of a holding period.

Is it worth participating in this plan? My plan would be to sell immediately to capture any gains. The long offering period and the low discount has held me back so far. The next enrollment period is beginning soon.

I do hold some company stock in a brokerage account, at approximately 5% of portfolio, if that makes a difference.
Jack FFR1846
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Re: Is this ESPP worth it?

Post by Jack FFR1846 »

No holding period and any discount is indeed worth it.

BUY
Bogle: Smart Beta is stupid
JediMisty
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Re: Is this ESPP worth it?

Post by JediMisty »

Is the price based on the last day of the six month period? If so, If the stock goes up more than 5%, you could actually pay more than if you had bought it on your own. Or did I misunderstand?
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FiveK
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Re: Is this ESPP worth it?

Post by FiveK »

Trying2learn wrote: Tue Oct 20, 2020 4:29 pm Is it worth participating in this plan?
Appears to be the same as if the company offered you a 5% * (whatever maximum percent of salary you may contribute) bonus. Would you take that?
Topic Author
Trying2learn
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Re: Is this ESPP worth it?

Post by Trying2learn »

JediMisty wrote: Tue Oct 20, 2020 4:47 pm Is the price based on the last day of the six month period? If so, If the stock goes up more than 5%, you could actually pay more than if you had bought it on your own. Or did I misunderstand?
Yes, if the stock price continually increases I would be paying a higher price than if I had cost averaged buying in myself over the six month period. That’s been my hesitation. When I look back to each of the six-month periods since I began working in the company, it’s been the case that the purchase date price is higher than it was at the beginning. Right now I buy monthly in my brokerage account but no discount.
KyleAAA
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Re: Is this ESPP worth it?

Post by KyleAAA »

Sounds like free money. I'd say doing basically nothing to make an extra few thousand dollars is worth it.
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Trying2learn
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Re: Is this ESPP worth it?

Post by Trying2learn »

FiveK wrote: Tue Oct 20, 2020 7:13 pm
Trying2learn wrote: Tue Oct 20, 2020 4:29 pm Is it worth participating in this plan?
Appears to be the same as if the company offered you a 5% * (whatever maximum percent of salary you may contribute) bonus. Would you take that?
.. Even if the purchase price is tied to a set date when the stock price could be high? I agree with you for cases where the purchase price is the lowest or average of the six month period.
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SmileyFace
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Re: Is this ESPP worth it?

Post by SmileyFace »

I would participate - note that a 5% discount on purchase actually represents a greater than 5% gain - and you've got 2 offering periods - so you are looking at an 11% return on your money - I would do it with almost zero risk.
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FiveK
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Re: Is this ESPP worth it?

Post by FiveK »

Trying2learn wrote: Tue Oct 20, 2020 8:04 pm
FiveK wrote: Tue Oct 20, 2020 7:13 pm
Trying2learn wrote: Tue Oct 20, 2020 4:29 pm Is it worth participating in this plan?
Appears to be the same as if the company offered you a 5% * (whatever maximum percent of salary you may contribute) bonus. Would you take that?
.. Even if the purchase price is tied to a set date when the stock price could be high? I agree with you for cases where the purchase price is the lowest or average of the six month period.
Yes, because your "...plan would be to sell immediately to capture any gains."

There may be a small short term capital gain or loss, but you have a more or less guaranteed ordinary income as described above.
AB609
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Re: Is this ESPP worth it?

Post by AB609 »

Probably worth it. You will pay income tax on the 5% discount and possibly a broker fee when you sell the shares. Better return then you are going to get on a CD when all is said and done, however. I participate in my company's plan and in that case they are rather slow to put the shares in my account after the end of the quarter (usually a couple weeks) but the share purchase price is set on the last day of the quarter. If the share price is volatile, my returns have sometimes been less due to a decrease in the share price between the and of the quarter and my first opportunity to sell several weeks later. I buy at a 15% discount so I have little more to work with.
JediMisty
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Re: Is this ESPP worth it?

Post by JediMisty »

Trying2learn wrote: Tue Oct 20, 2020 7:57 pm
JediMisty wrote: Tue Oct 20, 2020 4:47 pm Is the price based on the last day of the six month period? If so, If the stock goes up more than 5%, you could actually pay more than if you had bought it on your own. Or did I misunderstand?
Yes, if the stock price continually increases I would be paying a higher price than if I had cost averaged buying in myself over the six month period. That’s been my hesitation. When I look back to each of the six-month periods since I began working in the company, it’s been the case that the purchase date price is higher than it was at the beginning. Right now I buy monthly in my brokerage account but no discount.
That works well in the share price is falling. I pass on this deal at my employer. Couldn't get other folks there to understand why. I am maxing out my 401k including after tax (63,500) and my HSA. Then wait until all my taxes are done to see how much of the 7k Roth IRA I can get it. That's enough investing for me this year on a salary of 145k (plus my roommate rental income). A colleague played this game. Our discount is 10%. He gained 3.5% and was very happy over the course of the year. Meanwhile, how much did my portfolio go up last year? I didn't point that out to him. I did much better with my balanced 60/40 portfolio with less risk.
cogito
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Re: Is this ESPP worth it?

Post by cogito »

It sounds like this is a cut-and-paste 5% return on your money, and is not connected to whether the stock price has gone up or down during the six month offering period. In that case you would probably do well to not do any mental accounting about what the stock coulda/woulda/shoulda done, and make a pure calculation as to whether a guaranteed 5% on all your money is worth it to you. It would be to me, although, this does strike me as a rather weak plan, so I wouldn't lose too much sleep over it, we're probably not talking about more than a few hundreds bucks (net of other risk-free returns), unless you are an extremely highly compensated individual.

Many plans, mine included, give 15% on contributions on the lower of the start and end date, so you get no downside, and possible upside. Just this year the plan has given me more than 15k in income not including contributions, because 10% of my yearly bonus + six months paychecks went in, the stock doubled, and then I got a 15% discount on that. So a very material part of my compensation. Yours sounds like it does not have the same upside benefit, so may be more of a hassle than it is worth.
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WarAdmiral
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Re: Is this ESPP worth it?

Post by WarAdmiral »

Trying2learn wrote: Tue Oct 20, 2020 4:29 pm My plan would be to sell immediately to capture any gains.
There you go. Of course it's worth it.
sciencewhiz
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Re: Is this ESPP worth it?

Post by sciencewhiz »

Trying2learn wrote: Tue Oct 20, 2020 7:57 pm
JediMisty wrote: Tue Oct 20, 2020 4:47 pm Is the price based on the last day of the six month period? If so, If the stock goes up more than 5%, you could actually pay more than if you had bought it on your own. Or did I misunderstand?
Yes, if the stock price continually increases I would be paying a higher price than if I had cost averaged buying in myself over the six month period. That’s been my hesitation. When I look back to each of the six-month periods since I began working in the company, it’s been the case that the purchase date price is higher than it was at the beginning. Right now I buy monthly in my brokerage account but no discount.
If you invested monthly in your ESPP, the rate of return is ~18%. How many times did your company stock beat that rate over each 6 month period?
dcabler
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Re: Is this ESPP worth it?

Post by dcabler »

I've always had a 15% discount based on beginning or end of the period (usually 3 months but at 1 company 6 months), whichever had the lower stock price. One thing to check is how long it takes from the end of the period to the time it takes to appear in your account, if you wish to sell immediately which is what I do. At many companies I worked for, it showed up the very next day. At my current company it can take 4 or 5 days. 5% discount could easily be wiped out in that time.

Dru
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