ESPP - Would you participate and what's your strategy

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takingcharge
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ESPP - Would you participate and what's your strategy

Post by takingcharge » Wed Dec 13, 2017 6:36 pm

Details:
15% Discount
2 Subscription Periods/Year - Jan -June and July-Dec
Contribute 1%-10% of salary
Shares are deposited immediately after close of subscription period and can be sold any time

southpaw328
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Re: ESPP - Would you participate and what's your strategy

Post by southpaw328 » Wed Dec 13, 2017 6:48 pm

That's what I get and I do the full 10%. However I work for a company that has a massive market cap and I don't mind having ~5% of my net worth invested in them.

My brother works for a much smaller company, has ESPP options, but he's not really interested in buying/holding their stock, so he doesn't.

dcabler
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Re: ESPP - Would you participate and what's your strategy

Post by dcabler » Wed Dec 13, 2017 8:16 pm

Current company:
4 periods per year (one per quarter)
Can withhold up to 10%, in 1% increments
Purchase price is a 15% discount on lowest closing price on 1st day or last day of the quarter.
Strategy: This is free money. I was already going to save at least this amount into my taxable accounts anyway, having filled up all of my deferred space. So this just makes that deposit larger. The only risk is the difference between the set price for the period vs. the opening price the next day when I sell. Yes, I will pay short term capital gains because of this strategy. But my industry is historically volatile and I already have enough risk with the company by simply working there.

Best one I ever had: 2 periods per year (every 6 months). 15% discount on the lowest price of the 1st day or last day of the 6 month period, unless that price is higher than the previous 6 month period - in that case, the price from the previous 6 month period applies. Very nice if your company's stock price is on a roll. :moneybag

TheHouse7
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Re: ESPP - Would you participate and what's your strategy

Post by TheHouse7 » Wed Dec 13, 2017 8:24 pm

Yes, buy 6k per year max, sell everything every 3 months.
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

Jack FFR1846
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Re: ESPP - Would you participate and what's your strategy

Post by Jack FFR1846 » Wed Dec 13, 2017 8:29 pm

Yup, twice a year, 15% discount, 10% of salary, immediate sale through eTrade where I can set the sell order up to a year in advance of the vesting. Just have to manually see that the trade has settled to send the money to my credit union.
Bogle: Smart Beta is stupid

JBTX
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Re: ESPP - Would you participate and what's your strategy

Post by JBTX » Wed Dec 13, 2017 8:38 pm

takingcharge wrote:
Wed Dec 13, 2017 6:36 pm
Details:
15% Discount
2 Subscription Periods/Year - Jan -June and July-Dec
Contribute 1%-10% of salary
Shares are deposited immediately after close of subscription period and can be sold any time
For a 15% discount I would max It out. No brainer. Years ago I worked for a company with a 5% discount and I didn’t bother.

The question becomes after 6 months to sell and pocket the difference or wait another 6 months to get LTCG if in gain position.

balofagus
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Re: ESPP - Would you participate and what's your strategy

Post by balofagus » Wed Dec 13, 2017 10:29 pm

OPs ESPP appears to work just like mine. I contribute the max, and sell immediately. The first $<IRA contribution limit> of the January sale funds my Roth, everything else goes in to taxable.

sailaway
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Re: ESPP - Would you participate and what's your strategy

Post by sailaway » Wed Dec 13, 2017 11:01 pm

Another vote for max it out, sell immediately. We already have RSUs and some portion of our index funds invested in the company, thank you very much.

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g$$
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Re: ESPP - Would you participate and what's your strategy

Post by g$$ » Thu Dec 14, 2017 3:15 am

max it out, sell, rinse and repeat.

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DaftInvestor
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Re: ESPP - Would you participate and what's your strategy

Post by DaftInvestor » Thu Dec 14, 2017 7:45 am

Max it out And sell immediately. Very little risk unless you work in an M&A department or something (and are blocked from trading for long periods due to specific insider trading knowledge). Its practically extra money in the bank provided you sell right away.

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Top99%
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Re: ESPP - Would you participate and what's your strategy

Post by Top99% » Thu Dec 14, 2017 8:19 am

g$$ wrote:
Thu Dec 14, 2017 3:15 am
max it out, sell, rinse and repeat.
+1. Opportunities to earn an immediate 15% pre-tax return virtually risk free are always worth taking advantage of.
Adapt or perish

lazydavid
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Re: ESPP - Would you participate and what's your strategy

Post by lazydavid » Thu Dec 14, 2017 8:21 am

JBTX wrote:
Wed Dec 13, 2017 8:38 pm
For a 15% discount I would max It out. No brainer. Years ago I worked for a company with a 5% discount and I didn’t bother.
Agreed, take as much as you can at 15% plus lookback, that's a great benefit.

I used to take advantage of our 5% quarterly, transfer out, liquidate, reinvest. But they started putting restrictions on transfers (2 years!). You could still sell, but UBS charges for share transactions like it's the 1970s, and takes forever, so that ate up pretty much all of the discount. That money now just goes directly to my taxable account.

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djpeteski
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Re: ESPP - Would you participate and what's your strategy

Post by djpeteski » Thu Dec 14, 2017 8:43 am

The employees at the company I now work had have a 5 year holding period. In that case, I would tend to avoid the ESPP. I might make an exception if all my tax favored investments were taking care of, and then only for a smallish percentage of my taxable investing.

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nisiprius
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Re: ESPP - Would you participate and what's your strategy

Post by nisiprius » Thu Dec 14, 2017 9:16 am

When I was in that situation, I feared that my supervisor might know whether or not I was participating and consider it an indicator of my motivation and enthusiasm. So, just as I contributed to the United Way, I participated in the ESPP to the minimum extent possible: $5 a month. I didn't attempt to sell it because the only practical way to do so was via the company's HR department, thus defeating the purpose of appearing loyal. The company's stock went nowhere but down; when I was laid off, they issued me two printed, physical stock certificates. According to the certificate, they had some kind of minimum value of $0.50 per share. The company was acquired by another company which folded shortly thereafter. There might have been a brief window during which I could have exchanged my stock for soon-to-be-worthless stock in the other company.

At any rate, one of the certificates was for ten shares, and thus worth either $5 (unlikely) or zero. I sold the certificate to to a scripophily company for $10 and kept the other as a souvenir.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

spectec
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Re: ESPP - Would you participate and what's your strategy

Post by spectec » Thu Dec 14, 2017 9:42 am

Well, I began the day learning a new word.
Had never heard or seen the word "scripophily" until reading this post.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

RootSki
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Re: ESPP - Would you participate and what's your strategy

Post by RootSki » Thu Dec 14, 2017 9:48 am

4 periods per year (one per quarter)
Can withhold up to 10%, in 1% increments
Purchase price is a 15% discount on lowest closing price on 1st day or last day of the quarter.
2 year holding period.

I have been maxing this out for 10+ years. I have never taken a loss on ESPP shares.

JBTX
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Re: ESPP - Would you participate and what's your strategy

Post by JBTX » Thu Dec 14, 2017 9:56 am

nisiprius wrote:
Thu Dec 14, 2017 9:16 am
When I was in that situation, I feared that my supervisor might know whether or not I was participating and consider it an indicator of my motivation and enthusiasm. So, just as I contributed to the United Way, I participated in the ESPP to the minimum extent possible: $5 a month. I didn't attempt to sell it because the only practical way to do so was via the company's HR department, thus defeating the purpose of appearing loyal. The company's stock went nowhere but down; when I was laid off, they issued me two printed, physical stock certificates. According to the certificate, they had some kind of minimum value of $0.50 per share. The company was acquired by another company which folded shortly thereafter. There might have been a brief window during which I could have exchanged my stock for soon-to-be-worthless stock in the other company.

At any rate, one of the certificates was for ten shares, and thus worth either $5 (unlikely) or zero. I sold the certificate to to a scripophily company for $10 and kept the other as a souvenir.
I’ve never worked at a megacorp that thinks like you indicate such that managers or HR actually care whether you participate in such plans. I’m skeptical anybody really thinks like that. A 15% discount that you can dump in 6 months is an absolute no brainer. I used to to those whenever possible at my first megacorp. Years later megacorp number 3 gave 5% and it was a straight up 5% discount, not something you could liquidate in 6 months with a guaranteed gain. I never bothered with those.

Da5id
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Re: ESPP - Would you participate and what's your strategy

Post by Da5id » Thu Dec 14, 2017 10:06 am

Back when my company had an ESPP plan, I maxed it out. Sold the shares when I got them, paid my taxes. Seemed like a worthwhile deal. I thought about holding them for a year, but didn't think it worth the risk.

takingcharge
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Re: ESPP - Would you participate and what's your strategy

Post by takingcharge » Thu Dec 14, 2017 10:14 am

Thanks for all of the responses. We will max out, sell immediately, repeat.

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Hyperborea
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Re: ESPP - Would you participate and what's your strategy

Post by Hyperborea » Thu Dec 14, 2017 1:35 pm

JBTX wrote:
Wed Dec 13, 2017 8:38 pm
The question becomes after 6 months to sell and pocket the difference or wait another 6 months to get LTCG if in gain position.
The rules for it turning the gains into LTCG are a bit more complex than that. Depending on how the plan is set up it may take 18 months after the end of 6 month purchase period.

http://fairmark.com/execcomp/espp/dispositions.htm
The amount of compensation income you report depends on whether your disposition is a disqualifying disposition. In general, this is any disposition (sale or gift) unless both of the following are true:

• It is more than a year after the purchase of the shares, and
• It is more than two years after the grant date.
At one of the companies I worked for the grant periods started every two years with 6 month purchase periods. So, the length you would have to hold the batches varied over the two year grant period. If you do have 6 month grant periods then you will need to wait 18 months after the end of the purchase to turn the gains into LTCG.

Also, the discount is 15% so the actual return is 1/.85 ~= 17.6%. Pretty hard to beat that.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

John Z
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Re: ESPP - Would you participate and what's your strategy

Post by John Z » Thu Dec 14, 2017 4:49 pm

Hyperborea wrote:
Thu Dec 14, 2017 1:35 pm
JBTX wrote:
Wed Dec 13, 2017 8:38 pm
The question becomes after 6 months to sell and pocket the difference or wait another 6 months to get LTCG if in gain position.
The rules for it turning the gains into LTCG are a bit more complex than that. Depending on how the plan is set up it may take 18 months after the end of 6 month purchase period.

http://fairmark.com/execcomp/espp/dispositions.htm
The amount of compensation income you report depends on whether your disposition is a disqualifying disposition. In general, this is any disposition (sale or gift) unless both of the following are true:

• It is more than a year after the purchase of the shares, and
• It is more than two years after the grant date.
At one of the companies I worked for the grant periods started every two years with 6 month purchase periods. So, the length you would have to hold the batches varied over the two year grant period. If you do have 6 month grant periods then you will need to wait 18 months after the end of the purchase to turn the gains into LTCG.

Also, the discount is 15% so the actual return is 1/.85 ~= 17.6%. Pretty hard to beat that.
Yes, I was just about to try to explain this without any references and just from distant memory so excellent info above. I worked for a very fast growing company from 1970-1990 and was in their ESPP from the beginning. With the prices of shares going up so quickly I held all my shares for several years. One stock buy period I needed extra cash so immediately sold the shares to the company rather than depositing into my brokerage account. I had to claim a short term gain plus, surprise, I received an added tax bill because the company got some kind of credit because I sold the shares back to them in a short time. So do check your company's plans to see what time parameters you have to avoid any additional taxes. That was the last time I sold recently purchased shares.

Dandy
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Re: ESPP - Would you participate and what's your strategy

Post by Dandy » Thu Dec 14, 2017 8:10 pm

1. I would limit your total outstanding holdings to 5% or less total of your portfolio.
2. I would sell as soon as any gain was considered a capital gain not ordinary income.
3. I would max out my 401k plan before any ESPP purchases.
4. I would only do that if the company was especially strong and stop if/when its future prospects are uncertain.
5. Watch you total exposure - my old firm used to match my 401k with their stock, created stock "units" with vesting terms as a percent of any bonus etc. So the 5% should apply to all the company stock exposure not just the ESPP portion.

investor997
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Re: ESPP - Would you participate and what's your strategy

Post by investor997 » Thu Dec 14, 2017 8:26 pm

My megacorp offers the following ESPP:
-Payroll contributions up to 15%
-Shares are purchased on the last trading day of the month at a 5% discount off the closing price
-Purchased shares are deposited into the employee's account in 3-5 business days after purchase
-Plan is administered via Fidelity.
-The Plan says the following regarding selling purchased shares:
When you choose to sell Megacorp shares, the proceeds will be deposited into your Fidelity Account or you can request they be sent directly to you. You will be subject to a $25 sales fee (per transaction) along with a small regulatory transaction fee (currently $.0000221 per dollar of the total principal amount ofthe sales proceeds).
GIven all of the above, I think the deal sucks and I do not participate.

a5ehren
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Re: ESPP - Would you participate and what's your strategy

Post by a5ehren » Thu Dec 14, 2017 10:59 pm

My company is 15% with a look back. I sell immediately because my company is in a lagging sector and, while stable, does not have enough upside to justify the risk. But I take the free money and put it in savings.

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GerryL
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Re: ESPP - Would you participate and what's your strategy

Post by GerryL » Fri Dec 15, 2017 2:04 am

Don't do what I did.

My Megacorp had a similar ESPP and I participated, initially at 10% but later trimmed it to 5% (which eventually became the max anyway). Problem was I held on to everything, including the RSUs that were essentially added to the total. After quite a few years, when my pile of stocks accounted for an uncomfortably large portion of my net worth, I finally sold some (not a lot) and even did some tax loss harvesting with some shares that were bought at the height of the dot com boom. Kept my holdings below a max I set late in the game.

I always figured "buy and hold" was the golden rule and didn't understand how much my stash would grow. My coworkers were selling immediately to buy this or that. If I had it to do over again I would sell the stock to get the 15% gift and then invest it in my taxable account.
Retired with too much company stock, but I regard it as almost play money and don't even count it in my retirement planning. The dividends are nice pre-SS while I don't have much income, but I have to carefully consider how taxes will impact any decision to get rid of the stock, some of which went through several splits.

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