Question about Employee Stock Purchasing Programs (ESPP)

[David_Chen]

Hi Jeremy, really enjoy your content. What are your thoughts on incorporating a company provided employee stock purchasing program (ESPP) into your investment decision flow chart. My company offers a quarterly purchasing opportunity at a 15% discount for up to 10% of your salary. My inclination is to fully contribute (after contributing up to my 401k match) and sell off as each tranche reaches long-term capital gains maturity. Afterwards I’d purchase a broad index fund to diversify.

Wondering if this is the right strategy or if it makes sense to sell as soon as possible despite tax implications to avoid having a portfolio overly concentrated on my company (ESPP + human capital).

Thanks,
Dave

[Jeremy (Jeremy Schneider)]

Welcome @David_Chen!

@David_Chen

My inclination is to fully contribute (after contributing up to my 401k match) and sell off as each tranche reaches long-term capital gains maturity. Afterwards I’d purchase a broad index fund to diversify.

That would be my exact strategy. I couldn’t have phrased it better myself. I think the 15% discount is a deal too good to pass up. It does represent an aggressive strategy because you are accepting more risk of volatility (by being in a single stock) in exchange for that (hopeful) 15% boost after a year+. But as long as your finances are generally in order, it seems like a modest amount of risk for the reward. I hear what you’re saying about over concentration, but I think that’s just life. The stock will be a rotating year or so until you convert it to index funds, and an employee’s finances are always unavoidably tied to the company he works for.

Great work!

[David_Chen]

Thanks for the sanity check, Jeremy! Great to confirm that I wasn’t missing anything.