JBW submitted a question to Consumerism Commentary alongside an earlier discussion of my own Employee Stock Purchase Plan (ESPP) shares and I’d like to highlight the question here.
I’m currently trying to decide what to do in terms of my employer’s ESPP. The discount is 10% and stock is bought on a monthly basis (the month following the payroll deduction). So far so good. The issue… a 1 year required holding period to get the 10% discount. My company’s stock has taken a hit recently (banking), but I believe it to stay at a similar level or go up slightly over the next year. Thoughts?
The standard disclaimer applies: I am not a financial adviser. My company’s terms are a bit different. We are offered a 15% discount and no holding period. However, as a designated employee, I have to wait until an open trading period to sell the shares. I think it’s generally good advice to sell your shares as soon as possible, whether you’re receiving a discount or not.
You don’t want to be too heavily invested in the company that employes you. Looking beyond just your financial investment, your company also has control over your job status. There’s always a chance of another Enron-like debacle, so it’s not wise to keep all your eggs in one basket.
For me, this risk outweighs the tax discount that long term gains provide over short term gains.
The shares are given to you as part of your compensation. Even when the stock price goes down from the time of purchase to the time of sale, you haven’t truly lost any money you didn’t have before. In fact, you can deduct these losses against other realized gains to lower your tax bill.
This being said, I haven’t had a chance to sell my third quarter ESPP shares yet. I can only trade my company’s shares at certain times of the year, and my trading window opened on Monday. Unfortunately, I’ve been swamped at work and have had no time to apply for preclearance. Otherwise, I would have sold my shares.
My company’s stock has been down lately, but with the 15% discount we receive, I still would be reflecting a short term gain if I sold.
Do you have additional or other advice for JBW? I’m not an expert by a long shot, but I’ve learned a lot in the past few years thanks to reading articles and knowledgeable commenters.
Updated January 12, 2018 and originally published November 9, 2007.