# Participating in company ESPP?



## Grundlestein (Jun 25, 2011)

Hello all! First post here. 

I started a new job at a company about a month ago, and although the company does not offer any sort of pension plan, they offer a stock purchase matching program. At a maximum of 5% per pay cheque, this would represent about an extra of 2500 per year of matched stock purchases. 

Although I would not like to share what the specific stock is in order to stay anonymous to who I work for, I would like to note that the stock does not pay dividends and the growth does not look very promising over the past 5 years. As I am just starting with the share program, I am unsure wether or not I can cash in my shares easily or not.

Would you participate? I can look at it as my invest per month essentially doubles because of the match, where areas investing it would not see that much growth. Ideas?


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## MoneyGal (Apr 24, 2009)

The standard advice is:

1. Participate because of the "free money" aspect of the match. 

2. However, sell your stock as soon as you are able and diversify away from the concentrated risk of company stock (your human capital is very exposed to the company while you work there, your financial capital should be diversified away.)

3. DO NOT have this be your only savings plan. Make sure you are also saving, in some form (cash, other investments, aggressive mortgage paydown) to reduce your dependence on this particular form of investing. 

4. Recognize that if the stock goes south, your job may also be at risk - this is the primary reason that people advise against keeping a lot of company stock. As in, you may want to cash it in because you need the money because you've been laid off - but that action of you being laid off is highly correlated with falling stock prices. 

Hope that helps. I've participated in ESPPs whenever I've had the chance.


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## Eclectic12 (Oct 20, 2010)

Grundlestein said:


> Hello all! First post here.
> 
> I started a new job at a company about a month ago, and although the company does not offer any sort of pension plan, they offer a stock purchase matching program. At a maximum of 5% per pay cheque, this would represent about an extra of 2500 per year of matched stock purchases.
> 
> ...


I'd make sure to check out the process of selling shares. 

The only ESSP I've participated in was when I worked for IBM - no matching but at the time the stock was down, so I planned on holding for a while.

However, former co-workers moved to companies with such plans and the time the stock had to be held before a sale varied dramatically. The one they liked was where they could sell every six months. With several buyouts, the holding time changed to two years. In comparison, another co-worker had to work for the company for three years to qualify, then had to hold for another two years before a sale was possible. The stock can change value dramatically in five years.

The other question is the actual selling process, itself. The "standard" way to sell the IBM stock was to mail a letter - introducing a variable delay. 


Once you have the details on the holding period and selling process, it will be you a better perspective on how quickly you can react to any market changes.


Side Note: 
One co-worker commented that his sister thought it was horrible she and her husband were laid off as part of the AOL-TimeWarner merger. After a couple of months, they changed their minds. Since they were laid off, they were allowed to sell all of their stock at it's peak while their employed friends had to watch it drop like a stone. He figured the timing preserved about $5 million US.


Cheers


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## LondonHomes (Dec 29, 2010)

In your case I would join the plan, assuming that you can sell your shares at a regular basis ... it's an easy way to x2 your money every year. And the stock will need to tank 50% in 1 year before you start to lose your money.

Just make sure you take your stock payout and put it into your RRSP every year!


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## CanadianCapitalist (Mar 31, 2009)

Can you provide more details? Is the stock purchased every paycheque? Or is it purchased every six months? Either way, I'd participate but sell the stock every six months (assuming there is no vesting period, which I'd expect there wouldn't be).

Don't forget that there are new tax rules surrounding ESPPs. Make sure you can handle the reduced cash flow of 5% contributions plus taxes on the company match. 

http://www.canadiancapitalist.com/new-withholding-taxes-on-stock-option-benefits/


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## Plugging Along (Jan 3, 2011)

I agree with everyone else. It's free money. Buy the shares, and sell as soon as you can. If you find that in the future the company is having some more growth potential, then at that point you can hold on to some longer term.


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## Square Root (Jan 30, 2010)

You should participate for all the reasons mentioned. As you are not sure about the prospects for the stock you should probably sell as soon as practical for the reasons stated by MG. 
However, on the other hand i was employed by a big bank who had an ESPP. i know some fairly low level employees who kept their ESP shares, reinvested the dividends and had over $1miliion in their plans when they retired. Really depends on the company's prospects and agree that sometimes these are difficult to assess. Probably no more difficult than anything else though.


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