Do You Participate in an Employee Stock Purchase Plan?

Employee Stock Purchase PlanAbout 6 weeks ago I switched jobs. I was previously working at a Big 4 accounting firm and was fed up of sacrificing my nights and weekends all to work, work, work. I now work in a tax department at a large corporation and am much happier. One benefit my new employer offers is an employee stock purchase plan (ESPP).

 

What is an ESPP?

It’s a perk offered to employees where they can purchase stock of the corporation at a discount. My employer offers a 15% discount on shares to its employees.

To participate in the program I select a percentage of my gross pay that I want to set aside to purchase shares. However, this is an after tax-deduction on my paycheck.  The money is set aside and at the end of each quarter we are given the option to buy or have our pool refunded to us if we change our mind. If we decide we want to buy, the money is used to purchase the shares at the 15% discount.

Points to Consider

In order to reap all of the benefits of this program, I will need to hold the stock for at least two years to get the favorable tax rates. A lot can happen in two years! Maybe the company’s stock will be worthless in two years or maybe it will triple in value. It’s a risk you take when investing in the stock market.

My employer’s stock is expensive. It is trading at nearly it’s record price so the shares are not cheap. I also fear that the company’s growth rate may start to slow down. This could mean that the share prices may not rise significantly over the next few years and I may not make much money on this investment.

Is it Right for me?

There’s a lot to consider when deciding whether or not join an Employee Stock Purchase Plan. One of the first things I thought about is whether or not I could afford to invest in the ESPP.  We are living on a budget and trying to pay off our student loans. Participating in this plan would mean a smaller paycheck and less money to put towards the loans.

On the flip side, I am young and have only been out of college for two years. By investing now, I am giving my investments a ton of time to grow, which is crucial to building long-term wealth. It’s a balancing act – paying off debt and building up your savings.

Ultimately I decided to Invest

I will be setting aside a very small portion of my paychecks to invest in the ESPP. I will only be able to purchase a few shares each quarter. I don’t want to miss out on the opportunity to snag shares at a discount. Ultimately I believe this company will continue to grow which is why I am choosing to participate. I like that I have the option each quarter to invest or have the money returned back to me. This is no get rich quick scheme but I hope it will help build our long-term wealth.

Does your employer offer an Employee Stock Purchase Plan? Do you participate?

 

Photo Credit: freedigitalphotos.net

Comments

  1. Great post, Liz. My husband has an ESPP at his company, and we will likely invest in it after our debt is paid down more. He gets a 15% discount on the stock, but they require that you hold it for at least a year.

    • I understand where you are coming from, Laurie. My plan is to just start contributing the minimum for the time being. Then once our finances improve, I will consider contributing more for the stock.

  2. I absolutely invest in my employer’s ESPP. It’s a no-brainer, in my opinion. We also get a 15% discount and can contribute up to 10% of our pay towards it. I do the max and I always cash it out as soon as I can (we get the stock every six months). It’s been a great way to get a couple extra thousand “bonus” without any risk of loss since you gain 15% no matter what. One time our stock even doubled in the six month period.

    • Wow it’s hard to beat doubling your investment in six months. Sounds like your company is doing really well and offers a great plan.

  3. Great post! I have never worked at a large enough company to participate in anything like that…but I would if given the chance! =)

  4. That’s awesome that they offer you a 15% discount! My wife had one of those available to her, and it was only a 5% discount. We didn’t take advantage of it because her former company didn’t have the underlying financials to make me want to take advantage of it, but I think they can be a great boon for some people for sure. But, they have to be careful not to put too many eggs in one basket.