ESPP: Just Do It

Does your company offer an Employee Stock Purchase Program (ESPP) as a benefit? If so, you should definitely take advantage of it!

Wealthfront has an excellent write up that covers everything you would want to know about ESPPs. Here is my bullet point answers to common questions:

  • Yes you should do it. There is literally almost no risk due to the discount from the company.
  • It’s all upside with a minimum guaranteed return of the discount (and any appreciation in the stock is all upside!)
  • Yes you can sell it write away (personal opinion: you should).
  • Yeah the payroll deductions can hurt you for 6 months, but look at is as a 6 month savings account with a REALLY high return. You could literally make up the difference with credit cards and come out ahead (although please don’t do that).
  • Sign up as soon as possible especially if the program has a look back (locked in rate for an extended period of time).
  • You can usually decrease your participation at anytime if needed, but I don’t recommend as it resets your look back.
  • Max it out to the limit offered by your company. There is a federal cap of $25k per year.

ESPP is a no brainer. There is absolutely no risk/downside and all upside. It’s a guaranteed MINIMUM semi-annual return of the discounted 15% (over 30% annual return!). If the stock goes up, it’s even more. If it goes down, you still get the 15% discount so there is no risk. The one catch is you have to be able to live without a percentage  of your check for 6 months. Just view it as a savings account. I highly recommend you enroll, especially if you have the option of the 2 year look back rate.

Feel free to hit me up on Twitter with any questions.