4 ms·

Earlier this year, at my last boring corporate job, I was trading stock trading stories with our head accountant. (Like the time my brother and I were trading s

Earlier this year, at my last boring corporate job, I was trading stock trading stories with our head accountant. (Like the time my brother and I were trading stock tips about 10 years ago, when he turned me on to some up-and-coming German solar energy firm and I mentioned to him some small biotech company I had just read about. I invested a couple thousand dollars in the company my brother suggested and it was bankrupt within 24 months. My brother invested in both and the company I had mentioned -- I can't remember its name and only even vaguely remember the conversation -- has gone on to something like 50x return, easily making up for the losses from his lousy recommendation... But I digress.) I told the accountant, who I always found watching CNBC in the break room and I suspect still dreamed of being a day-trader, that the best investment I ever made was our company's ESPP (Employee Stock Purchase Plan). He said, "You know what? Same here." (Standard disclaimer: max out your 401(k)/IRA contributions, first.)

chug 10y ago
It's important to remember that this is putting all of your eggs in one basket to a certain extent though. Your income, your 401k match, and your ESPP are all tied to your employer, so as long as things are good, ESPPs can be a great way to make easy money, but if things take a stark downturn, you can find yourself with ESPP you lost money on, a slouching 401k, and no job. The chances of that happening are fairly low, but still something that makes me a little uncomfortable about ESPPs. Obviously your advice to max our 401k/IRA contributions first should mitigate a lot of this, but I think it's important to mention the risk too since there's a certain temptation for younger engineers who think it sounds like easy money and don't realize the full implications of it.
- irrational 10y ago
  That's true, but I always sell my ESPP as soon as it is purchased. That is an immediate 15+% return. Our ESPP is 15% off of the lower of either the beginning or the ending of the offering. Of course the hope is that it will be the lower at the beginning of the offering so that the sell will be 15% + the amount the stock has risen since the beginning.
  - hobonumber1 10y ago
    Well it is 15% but you are paying income tax on it because you aren't holding it for a year. So depending on your tax situation, it may be closer to 7-10%. Still good though.
    - findjashua 10y ago
      The income tax on the profits. If you sell the espp instantly, there isn't much profit, so I'm guessing there isn't much tax?
    - irrational 10y ago
      Well, according to this guy: https://thefinancebuff.com/employee-stock-purchase-plan-espp-is.html https://thefinancebuff.com/employee-stock-purchase-plan-espp... it is closer to a 90% return. The example he gives is exactly how my company's ESPP works.
  - chug 10y ago
    The only company I've worked at with an ESPP required you to hold the stock for 1 year before selling--not in the sense of tax incentives unfortunately, but you literally cannot sell before 1 year. I didn't realize there were ESPPs where you sell immediately. In that case, woo free money!
toomuchtodo 10y ago
> (Standard disclaimer: max out your 401(k)/IRA contributions, first.) Minor quibble. Your 401k plan almost always has more fees than index funds at someplace like Vanguard. 1. Contribute to your 401k to get your entire company match. 2. Then max out an IRA, a Roth IRA, or a combination of the two based on your income level. 3. Only then continue to max out your 401k. https://i.imgur.com/1rPEkGQ.png https://i.imgur.com/1rPEkGQ.png
mojomark 10y ago
"...the best investment I ever made was our company's ESPP (Employee Stock Purchase Plan)." This is certainly not true for all companies. I lost over $100K due to our Employee Stock being driven into the ground over the course of a decade by a CEO and board who had loose ethics and no business running a company. My advice is, before investing in you're ESPP (or Employee Stock Ownership Plan - ESOP), even if you're surrounded by exceptional talent, take a close look at your corporate leadership before purchasing. If they seem sleezy and disingenuous, they probably are and it may be 10 years before you realize you've been totally screwed.

chug 10y ago

It's important to remember that this is putting all of your eggs in one basket to a certain extent though. Your income, your 401k match, and your ESPP are all tied to your employer, so as long as things are good, ESPPs can be a great way to make easy money, but if things take a stark downturn, you can find yourself with ESPP you lost money on, a slouching 401k, and no job. The chances of that happening are fairly low, but still something that makes me a little uncomfortable about ESPPs. Obviously your advice to max our 401k/IRA contributions first should mitigate a lot of this, but I think it's important to mention the risk too since there's a certain temptation for younger engineers who think it sounds like easy money and don't realize the full implications of it.

irrational 10y ago
That's true, but I always sell my ESPP as soon as it is purchased. That is an immediate 15+% return. Our ESPP is 15% off of the lower of either the beginning or the ending of the offering. Of course the hope is that it will be the lower at the beginning of the offering so that the sell will be 15% + the amount the stock has risen since the beginning.
- hobonumber1 10y ago
  Well it is 15% but you are paying income tax on it because you aren't holding it for a year. So depending on your tax situation, it may be closer to 7-10%. Still good though.
  - findjashua 10y ago
    The income tax on the profits. If you sell the espp instantly, there isn't much profit, so I'm guessing there isn't much tax?
  - irrational 10y ago
    Well, according to this guy: https://thefinancebuff.com/employee-stock-purchase-plan-espp-is.html https://thefinancebuff.com/employee-stock-purchase-plan-espp... it is closer to a 90% return. The example he gives is exactly how my company's ESPP works.
- chug 10y ago
  The only company I've worked at with an ESPP required you to hold the stock for 1 year before selling--not in the sense of tax incentives unfortunately, but you literally cannot sell before 1 year. I didn't realize there were ESPPs where you sell immediately. In that case, woo free money!

toomuchtodo 10y ago

> (Standard disclaimer: max out your 401(k)/IRA contributions, first.) Minor quibble. Your 401k plan almost always has more fees than index funds at someplace like Vanguard. 1. Contribute to your 401k to get your entire company match. 2. Then max out an IRA, a Roth IRA, or a combination of the two based on your income level. 3. Only then continue to max out your 401k. https://i.imgur.com/1rPEkGQ.png https://i.imgur.com/1rPEkGQ.png

mojomark 10y ago

"...the best investment I ever made was our company's ESPP (Employee Stock Purchase Plan)." This is certainly not true for all companies. I lost over $100K due to our Employee Stock being driven into the ground over the course of a decade by a CEO and board who had loose ethics and no business running a company. My advice is, before investing in you're ESPP (or Employee Stock Ownership Plan - ESOP), even if you're surrounded by exceptional talent, take a close look at your corporate leadership before purchasing. If they seem sleezy and disingenuous, they probably are and it may be 10 years before you realize you've been totally screwed.