Index funds or ETFs for ESPP Cash Out

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Index funds or ETFs for ESPP Cash Out

Post by emmyrae93 »

For reference I am a 29 year old female maxing out my 401K and Roth IRA. Debts have a 0% interest rate so I am avoiding paying them off except making the minimum payments each month. EF is fully stocked with $25,000. Current net worth is around $140,000. I have no primary residence, but plan to buy a home in the next 3-5 years. I' plan on allotting my bonuses and my RSU's (value of $24,000 now) to my house fund.

I'm going to be having my ESPP plan purchasing my company stock at the end of September. I contribute 10% of my base salary through after-tax payroll deductions. The purchase at the end of each Payment Period is at a 15% discount off the fair market value (closing price) of the Common Stock price on either the first day of the Payment Period or the last business day of the Payment Period, whichever is lower. I'll have contributed close to $5000.

I have $1200 invested in ETFs now. I do not actively invest in this M1 account. The allocations are as such:
25% U.S. Large Cap Stocks VOO
25% U.S. Small Cap Value AVUV
10% Developed Markets (ex-US) VEA
10% Developed Markets (ex-US) Small Cap Value AVDV
10% Emerging Markets VWO
10% Emerging Markets Small Cap Value DGS
10% U.S. Treasury STRIPS EDV

I have time on my hands to ride out any market volatility. Alternatively, I have a Fundrise Account (Growth Plus Plan) with about $11,230 in it. I know REITS are taxed heavily so this is a last resort account I would place the ESPP funds in. With the market being (and possibly remaining) low, I'd like to re-invest into the market, just don't know if it should be index funds or my already established ETFs, or just simply hold the cash?
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Re: Index funds or ETFs for ESPP Cash Out

Post by FiveK »

emmyrae93 wrote: Thu Aug 04, 2022 7:53 pm I'd like to re-invest into the market, just don't know if it should be index funds or my already established ETFs, or just simply hold the cash?
Any of those choices could be correct.

See ETFs vs mutual funds for the generic comparison of those alternatives.

Holding the cash now implies that you will be seeking to determine the market bottom so you could invest it then. The likelihood that you will pick that time exactly is low, so investing now is a reasonable choice.

In any case, "keep up the good work" seems an appropriate summary for your current situation. :)
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Re: Index funds or ETFs for ESPP Cash Out

Post by shess »

Don't overthink it, the fact that this is ESPP money is not important. It's just money, and it's likely to not generate life-changing amounts.

Set aside money to pay taxes, obviously.

You can mentally rollover the proceeds from one sale of shares from ESPP into paying for the next period's purchase, which takes care of most of the money. Then just drop whatever is left into your normal use for whatever is left is.

Which brings up a question: What is your normal use for extra cash? Maybe you don't have any specific plan? If so, you could think of dropping it into your M1 account (which are already ETF index funds, that's not an either/or choice). For my tastes you have too many moving parts in there, but that's about how many moving parts I had at 29, so *shrug*.

One thing about not having a plan for excess cash is that you are more likely to spend it, and you also may be unlikely to look for savings in your current spending patterns. I don't mean to suggest that you're doing things wrong, just that lack of a goal can sometimes result in missing opportunities which are sitting right there, simply because you aren't thinking that way about things. So changing from "I do not actively invest in this M1 account" to "I add $100/month to this M1 account" might cause you to start thinking about how to add $200/month, or $300/month, etc.

Personally, I think sometimes people simply assume that the limits on contributions to tax-advantaged space are well thought out, constituting "enough". In reality, nobody puts any thought into whether it is "enough" for any particular person. Tax-advantaged space alone is almost certainly not sufficient for an early retirement. IMHO having a habit of periodically adding to a taxable account and treating it as if it is as untouchable as untouchable as your retirement account is a good habit to develop.
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Re: Index funds or ETFs for ESPP Cash Out

Post by niagara_guy »

Thirty years ago I was able to participate in a similar ESPP plan, 15% off the lower of the opening / closing price for the quarter and I could sell within a couple of days of the close of the quarter which I did. Sometimes the stock went up a lot during a quarter, I made a killing, sometimes it didn't (I don't remember ever losing money). I was putting in most of my paycheck to buy this stock since it was almost zero risk. Best investment I ever made. YMMV.

I would not recommend keeping the stock longer than you are required to and I would not be comfortable if I had to hold the stock very long after the quarter closed.
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