DH invests 12% of his salary into the company employee stock purchase plan (ESPP). Every six months, the plan purchases shares. My understanding is that they look at the market prices on the first and last day of the plan period, and then take an additional 15% off the lesser price.
The latest period closed on 7/31, and was one of the best periods we've seen. The ESPP purchase price was $29.99, and the current market price is $46.97. This period, DH put in $7827, and if he sells now will realize a gain of $4432. 56%return for a six month investment!
Of course this isn't typical, but in general we can count on a 15% return, although there is always the risk with stocks that a very sharp downturn could turn it into a loss in the few days between purchase and when the shares reach our account.
The one wrinkle is taxes. We could hold it for two years, and then only have to pay long-term capital gains tax. Since it's a high-tech stock, this is kind of a risky move. If we sell it within a year, we'll pay income tax on the 15% discount, and short-term captial gains on the rest.
It does make it a little more complicated when we go down to one income, since I need that $1300/mo to make our budget work. If we sell immediately, I'll set aside $7800 and treat it for budget purposes like $1300/mo income. If we don't sell immediately, I'll "borrow" the money from the emergency fund and repay it when we sell.
DH and I need to talk about what do do with the $4400 gain. After setting aside some for taxes, the rest could either go into his stock-trading account, or into our vacation fund. He wants to take a big trip (possibly a Mediterranean cruise) when we turn 40 next year, but I don't currently have funds allocated toward that, nor room in the budget to save the amount we'd need.
Other good news -- with the stock market recovery, our net worth just topped 1 million again.
Great return on ESPP
August 4th, 2009 at 10:06 am
August 4th, 2009 at 09:13 pm 1249420389
August 4th, 2009 at 09:25 pm 1249421145
August 4th, 2009 at 11:33 pm 1249428798
My employer operates an identical scheme... I havn't took advantage yet... not sure if I will... mainly because I'm not debt-free yet... also because I already own company stock through an income-tax advantagesous salary-foregone scheme...
I don't want all my eggs to be in one basket... but you are dealing with that issue by selling asap at end of cycle...