Should You Avoid Employee Stock Purchase Plans?

My wife's new employer offers an ESPP with a five percent discount. We are saving 40+ percent of our gross income. We're married at 30 and 28, but we're not fans of single stocks. What should we consider to make it worth it, because we love free money, and rightly so? Bo, I'll give some thoughts, and then you can share your insights since you deal with a lot of these Employee Stock Purchase Plans. First thing, a lot of people, you know, when we came up with the Financial Order of Operations, we had to be selective with the data we included. However, we did discuss the fact that if your employer offers you a five percent discount, there's something you didn't mention, Braden. Often, it's the lowest price at either the beginning or end of the quarter. You didn't provide that detail, but I'll discuss the versions we've seen where it's not only a five percent discount but also a five percent discount from the lower of either the beginning or end of the quarter. So, that number could actually be fifteen percent. It could be a significant number. We actually like Employee Stock Purchase Plans and believe that the five percent discount could be considered part of step two of that free money, but there's an asterisk next to it. I'll leave some of the details for Bo to explain. As you mentioned, Braden, it's an individual stock tied to your employer, the place that pays your wages. I completely understand having a disdain for individual stocks and not wanting to play that game. Buying low-cost index funds is a great strategy. However, you mentioned something we love in your situation: you're saving 40 percent of your gross income, which is awesome. The conversation you need to have with yourself is whether your dislike for individual stocks outweighs your love for free money. The answer is probably not, and that's why you should consider implementing a system or process to control how you approach it. We have many people participating in ESPP plans. We advise them to defer the money and purchase the stock at the discount. If there's a trading window discount, they can get it at an even lower price. They hold the stock for the required holding period, which could be six months, 12 months, 18 months, or even zero months. Once it reaches the disqualifying disposition date, they sell it and reinvest the proceeds. This way, they take advantage of the discount and ride the stock for a while, knowing that the market tends to go up 8 out of 10 years. They can be confident that their company stock is likely to increase over time. The risk over the six to 18-month period might not be substantial enough to avoid participating. They can benefit from the five percent discount, let the stock ride, sell it, and repeat the process. I believe it's a great way to take advantage of free money without compromising your ideals of avoiding individual stock investments.