Soon able to buy stock in my company - should I?

[frugalredhead]

here's is the blurb we've received so far:


"The ESPP allows you to set aside a small amount of each paycheck, on an after-tax basis, to purchase shares of stock at a discount. Eligible employees are invited to participate during the first enrollment period Aug. 1-15."

How does this work, should I do it, etc? I am aggressively paying off a mountain of debt, and am currently only contributing enough to my retirement to get the comapny match. I thought I saw someone post the other day that they buy their company stock at a discount and then immediately sell it to make a profit. Is this something worth doing?

[97guns]

you enroll between aug 1 and 15th, you set the amount they hold out of your check, they buy stock at the end of the plans period, you should be able to adjust the amount withheld throughout the plan, there are usually 2 plans a year

my company purchase price for the espp plan was at the first day of plan or last day of plan whichever stock price was lowest, we would make gains on the stock before we even took delivery of it

[fruitbowlk]

I did this last year. I think I will keep the stock after my one-year holding period is up to see how it goes. This was my first time buying company stock. As of know I'm breaking even.

I did 5 percent% from my paycheck weekly for six months.

[frugalredhead]

Okay, so if it's not something I can sell right away, I probably shouldn't think about doing this until my debt is paid off, correct? Because having that money tied up for 6 months or a year is less that I can put towards credit cards, which I am paying plenty of interest on. Am i thinking about this correctly? I was thinking I could buy at a discount and then immediately sell, but it looks like that probably isn't the case...

[cardtrick]

Okay, so if it's not something I can sell right away, I probably shouldn't think about doing this until my debt is paid off, correct? Because having that money tied up for 6 months or a year is less that I can put towards credit cards, which I am paying plenty of interest on. Am i thinking about this correctly? I was thinking I could buy at a discount and then immediately sell, but it looks like that probably isn't the case...

There is almost always a holding period so your thinking is accurate. Why pay x% interest on your credit card and hope your stock either stays where it is or goes up when you can get a guaranteed x% on your money by paying off the debt as soon as you can? Wait till everything is paid off and then you can use the ESPP.

[krantcents]

Like any (individual stock) investment, you should limit the concentration to 5% of your portfolio. If it exceeds that percentage, you should diversify. You can sell or buy more stock or better yet a broadly diversified mutual fund. My daughter has stock options and I occasionally remind her about this principle. She works for an excellent company that has enjoyed good profits even during the recession, but you don't want to risk your investment.

[edg126]

I think it would depend on the type of debt, if it's high interest, I wouldn't bother with it until it's paid off.

Here's what I do with my ESPP. It's with a megacorp on the S&P 500 list.

Their terms:
-2 purchase periods a year, every 6 months.
-you can put up to 10% of your salary.
-they give you a 15% discount off the price of whatever is cheaper on the beginning or end of the period.


What I do:
-put in 8% of my salary now (I'll eventually bump it up to 10%).
-I've been with the company 2 years, participating for 1.5 years (contributed 4%, 4%, 6%).
-I sell as soon as possible. The purchase is the 2nd of jan and july, I can sell around the 9th, and funds are available around the 15th.
-In the 18 months (3 purchase periods) I've put in $6940, and have earned $3250 (awesome!!!)
-The money is building up our EF, and some big misc expenses that has popped up (like a bathroom remodel) but the plan is to immediately take that money and go buy a more diversified fund (it's scary seeing the price of one stock fluctuate, although it does give me more knowledge about the workings of my company. Since I want to know what they are doing to make it rise and fall)
-by selling and then immediately reinvesting (the plan) it has me a little less concerned about if we go through another recession, or losses in the 3 week period money is tied up, which are common complaints/concerns. more than likely it would be a wash with company stock low, index fund low. I think fidelity might even have a way to do both simultaneously to lock both prices in.

Websites say doing the ESPP this way equates to getting a 1% salary increase with 10% invested with my type of plan and 'scheme'. I can see that. It's not a get rich quick scheme, but I like that it saves my money outside of a retirement fund and gives me options with a biannually chunk of cash, and some extra (the ROI). So I'm happy, and hardly notice the dent in my paycheck.

[EEinNJ]

Ask yourself this question- If you could buy at market price with no commission, no minimum, would you buy shares? Or would you pay off debt?

Years ago I worked for a big pharma corp that had a program like yours, with payroll deduction. Funny, but the plan always seemed to buy at a high price. Over time, I did pretty well with it. I sold all my shares a few years after I left the company. Despite it's reputation,I don't like how the company is managed.

My point is, do you think the company is a good investment, and if so, can you afford it?

[moneysma]

I worked for a company that offered an ESPP. We bought the stock at a 15% discount. I made it a point to put aside $50 a paycheck to buy stock. When I left the company it was a nice little "bonus".

I knew of a co-worker that worked there for over 15 years. He quit last year, cashed out his ESPP and used the money to pay off his house. He's 45 and retired.

This isn't to say you should jump at the chance and pour everything into your ESPP. You have to figure out what your long term plans are and if it makes sense to put money aside in the plan.

[~bs]

What company? ESPP are usually a really good deal for employees, and you'd make the most money by maxing out the amount. The 15% discount on lowests price in the period is a really strong provision. In a company's whose stock steadily gains in price, you can make a lot of money over time. $10 beginning of period, $13 end of period, 15% discount taken on $10, so you get the stock for $8.50. 52% gain (oversimplified example)


If you can't stand the risk of owning so much in an individual stock, just sell it for a profit as soon as you are able to. Easy money, and a nice way to pay off debt. Don't forget about the tax that you'll owe on your stock gain