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Company Stock Purchase Program

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  • Company Stock Purchase Program

    My Employer is offering an Employee Stock Purchase Program to physicians and wanted to see if anyone had anything similar or had some input on whether this is a good idea.

    Here's the info: It's stock in the parent company (a Fortune 50 company). Shares are bought with after tax money. It allows me to buy "common stock at a 15% discount", and "the 15% discount is applied to the stock price at the beginning or end of the six-month purchase period, whichever price is lower."

    I generally don't buy individual stocks, but the 15% discount seems like a really good deal. I'm tempted to put 1-2% of my salary into this. Am I missing something?

    *Let me know if there is already a thread on this. I tried several different search terms but didn't find anything.

  • #2
    When can you sell it?!

    How far in advance do/can you choose to participate?

    Do you think the company has growth potential?


    • #3
      I can sell shares 2 years after they're purchased.

      I decide whether/how much to contribute during open enrollment each year (November for us).

      Its a major company within healthcare and I think it will continue to grow similarly to how the S&P and healthcare industry grow or fall.


      • #4
        Agree with adventure, when can you sell it. If so I'd pretty much do this all day every day until the proceeds equaled FIRE. Obviously they wont let you do that.

        On a more serious note if a decent company, thats a steep discount and I'd take a serious look at it.


        • #5
          Would you buy this stock with a lesser or no discount?  If so, you should absolutely buy it with a 15% discount.


          • #6
            That's a free 17.64% gain on your money.  I'd do that every day and twice on Sundays.  However, I still would try to keep this to less than 10% of my investments.

            Buy as much as you can, continue to buy as much as you can, and cycle the money out of company stock and into Vanguard total stock market right at the two year point.  Lather, rinse, repeat.


            • #7
              I think you have the right idea with 1-2%.  I wouldn't get too seduced by that discount since you are agreeing to be locked up for two years in a healthcare stock.  A lot can happy in two years, including potential upheaval with the ACA.  Depending on how things shake out in Washington, your 17.7% paper "gain" could evaporate. Since your income is also tied to healthcare, I'd just be cautious about increasing your exposure too much.


              • #8
                The key is how long you have to keep it before selling, as mentioned above. Our loose rule of thumb is never to have > 10% of your portfolio in your company stock. The healthcare industry is in such flux and the profitability of companies are so tied into regulation, that I would think long and hard before making this decision. It could turn out well or it could not. That's the biggest problem with individual stocks and, especially so, with the shares of the companies we work for. We are blinded by familiarity and don't know what we don't know.

                ESPPs (Employee Stock Purchase Plans) are used to generate fidelity within the ranks along with a desire to help the company grow. I think 30+ years ago, they were more effective than they are today. I'm not saying don't do it, but go into it with your eyes wide open - this is not a guaranteed win since you have to hold the stock 2 years minimum. Anything could happen in 2 years. And keep your exposure low.

                We are almost 10 years into a strong market. Bears have come along every 5.5 years, on average, since the end of WWII. Annual corrections of around 14% are also the norm. We have not been experiencing these periodically, either. I am not predicting that things are about to go south, only that they will go south eventually - but temporarily. I would hazard a guess that close to 50% of the readers on this forum have never had significant portfolio exposure in a real bear market. Having that expectation and an understanding of history will help keep you from doing something stupid.
                My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
                Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


                • #9
                  If you're maxing out the other safe buckets (i.e. 401k, Roth, maybe HSA, etc) then I don't see an issue with doing it. I do agree with jfoxcpacfp about keeping exposure low. Make sure you're doing all the other right things first.