ESPP - help talk me into selling

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Whakamole
Posts: 591
Joined: Wed Jan 13, 2016 9:59 pm

ESPP - help talk me into selling

Post by Whakamole » Mon Feb 01, 2016 9:51 am

I've been contributing to my ESPP plan since I joined my current company some time ago. Recently the stock value has been increasing, so I decided to, for the most part, stop selling. Right now I'm sitting on $8k+ of capital gains, split about equally belong long-term and short-term.

I sold some last year, which raised my income fairly significantly, and I'd expect to pay roughly 22% in capital gains tax if I sold the remainder.

The standard Bogleheads response for ESPP (and for many at my workplace) is "sell it as soon as you get it" for the instant ROI, but this stock has also kept me above water for the past year.

I know the right thing to do is sell it and go for ITOT/IXUS (money is at Fidelity), I just need some encouragement to take the tax hit (and not feel like a sucker if the stock continues to outpace the market as a whole.)

User avatar
happymob
Posts: 542
Joined: Wed Nov 18, 2009 4:09 pm

Re: ESPP - help talk me into selling

Post by happymob » Mon Feb 01, 2016 9:56 am

Whakamole wrote:The standard Bogleheads response for ESPP (and for many at my workplace) is "sell it as soon as you get it" for the instant ROI, but this stock has also kept me above water for the past year.
Economy tanks. Stock market tanks. Your company's stock price tanks. You are laid off.

This is about risk. Increasing your position in a single company (and in particular your employer) increases your risk by quite a bit.

quantAndHold
Posts: 1701
Joined: Thu Sep 17, 2015 10:39 pm

Re: ESPP - help talk me into selling

Post by quantAndHold » Mon Feb 01, 2016 10:18 am

It's a lot of single company risk. What if all the execs are hauled off in handcuffs and the company goes bankrupt, at the same time you get laid off. Could you handle that financially? It happens. It happened to me. One day the stock was $23. The next, the execs were doing the perp walk, and the stock was $2. A few weeks later, I sold my stock for $0.26. I only lost about $20k. Other people lost everything.

The question to ask is if you would invest in this stock if you didn't work there, and what percentage of your portfolio it should be. Invest according to your IPS. If you have some short term capital gains, it might make sense to hold what you have until the tax rate goes down, but any new stock you get should probably be sold right away.

I'm in the same boat now, I have appreciated company stock. I keep the amount down to no more than I would keep of any other individual stock, then sell the rest as soon as I get it.

Whakamole
Posts: 591
Joined: Wed Jan 13, 2016 9:59 pm

Re: ESPP - help talk me into selling

Post by Whakamole » Mon Feb 01, 2016 10:24 am

quantAndHold wrote:It's a lot of single company risk. What if all the execs are hauled off in handcuffs and the company goes bankrupt, at the same time you get laid off. Could you handle that financially? It happens. It happened to me. One day the stock was $23. The next, the execs were doing the perp walk, and the stock was $2. A few weeks later, I sold my stock for $0.26. I only lost about $20k. Other people lost everything.

The question to ask is if you would invest in this stock if you didn't work there, and what percentage of your portfolio it should be. Invest according to your IPS. If you have some short term capital gains, it might make sense to hold what you have until the tax rate goes down, but any new stock you get should probably be sold right away.

I'm in the same boat now, I have appreciated company stock. I keep the amount down to no more than I would keep of any other individual stock, then sell the rest as soon as I get it.
Thanks. I don't have everything in it - total value is about 3.7% of my net worth, not including what the funds hold since the company is on the S&P 500. I probably wouldn't have invested in this stock directly, just because I'm not investing in individual stocks anymore. Even if I was, I wouldn't have expected the stock to take off like it has.

goingup
Posts: 3047
Joined: Tue Jan 26, 2010 1:02 pm

Re: ESPP - help talk me into selling

Post by goingup » Mon Feb 01, 2016 10:41 am

Whakamole wrote: Thanks. I don't have everything in it - total value is about 3.7% of my net worth, not including what the funds hold since the company is on the S&P 500. I probably wouldn't have invested in this stock directly, just because I'm not investing in individual stocks anymore. Even if I was, I wouldn't have expected the stock to take off like it has.
Whakamole-
I'd suggest not holding a stock position which is more than 10% of your portfolio value. You concentrate your risk by holding company stock because, well...you work there. :wink:

mak1277
Posts: 654
Joined: Fri Jan 09, 2015 4:26 pm

Re: ESPP - help talk me into selling

Post by mak1277 » Mon Feb 01, 2016 11:07 am

Whakamole wrote:just because I'm not investing in individual stocks anymore
You just answered your own question. There's (presumably) a reason you don't invest in individual stocks...your own company should be no exception.

I guess the only caveat would be if you were in a high enough position (CFO or something similar) to where you knew the company was exceeding overall market returns for a very good reason, and could predict the trend to continue.

User avatar
Toons
Posts: 12689
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: ESPP - help talk me into selling

Post by Toons » Mon Feb 01, 2016 11:40 am

"total value is about 3.7% of my net worth"

I would consider selling at that percentage but not a must do. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

inbox788
Posts: 5048
Joined: Thu Mar 15, 2012 5:24 pm

Re: ESPP - help talk me into selling

Post by inbox788 » Mon Feb 01, 2016 12:01 pm

Whakamole wrote:Thanks. I don't have everything in it - total value is about 3.7% of my net worth, not including what the funds hold since the company is on the S&P 500. I probably wouldn't have invested in this stock directly, just because I'm not investing in individual stocks anymore. Even if I was, I wouldn't have expected the stock to take off like it has.
I wouldn't stress over that amount, but if your strategy pans out, the percentage may grow. Been there and keep trying to get out, but every time I sell some and pay the taxes, I've bought back a smaller position in VTI, the single stock has risen more than the market, and makes me feel like I made a mistake. But the percentage has gotten uncomfortably high, so I do keep derisking despite the tax hit and under performance. In another forum, the regret is keeping too much invested in single company stock, and there were plenty of those during the DotBomb era.

anjou
Posts: 157
Joined: Sat Dec 29, 2007 12:55 pm

Re: ESPP - help talk me into selling

Post by anjou » Mon Feb 01, 2016 9:31 pm

The reason to sell the ESPP right away is to not make a bigger return but to decrease risk. Absolutely you could make more in a single stock vs VTI, but you could also lose more. When you sell your ESPP right away, you have created a risk free return that is much much higher than what you can get anywhere. That is a great investment. Congratulate yourself that you have this wonderful opportunity, and use it per your original plan without deviation.

Anjou.

Post Reply