Cutting Back on my ESPP

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Almost a year ago I wrote an article on Employee Stock Purchasing Programs. Here’s a link: Employee Stock Purchasing Program.

I defined an Employee Stock Purchasing Program as:

A company-run program in which participating employees can purchase company shares at a discounted price. Employees contribute to the plan through payroll deductions, which build up between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to shares in the company on behalf of the participating employees. The amount of the discount depends on the specific plan but can be as much as 15% lower than the market price. -Investopedia.com

I discussed how much I was going to start contributing, and how I excited I was on starting on this journey to build my wealth. My company matches every share you buy three years after maturity. I started contributing to my ESPP shortly after.

Now, I’m seriously considering, and probably, will stop contributing to my ESPP.

Why?

  • I feel like I have no control over my investment. Dividends are automatically reinvested to the company. I asked about getting dividends in cash form so I could reinvest it elsewhere, and my program doesn’t work that way. 
  • Three years is a really long time. I don’t know where I’m going to be in 3 years. Maybe I’ll be laid off? Maybe I would have moved on? Maybe my company would have suffered a downturn? The truth is I’m beginning to not see a long term future with my company.
  • I’m not diversified with my investments. My salary comes from my employer. I think having another part of my investment coming from my employer does not allow me to be diversified. I shouldn’t have all my eggs in one basket.

Gone are the days when companies cared about you. I cannot risk a part of my future on my company.

WitchWithCrystalBall

I have, also, done some thinking on my investment strategy, and think it would be wiser for me to allocate the after-tax ESPP contribution to my 401K. It would be more in line with the direction of our goals.

Do you have an ESPP? What has been you strategy?

– Comment below, share your ideas, and thoughts –

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4 comments

  • Mr PoP had an ESPP at his job before we got married, and at the time, he put all of his eggs in that basket and did all ESPP instead of 401K because of the vesting. The ESPP let him buy the stock at something like a discount from the minimum price over the previous year. So you were in the money from day 1, with significant potential upside since it was a rapidly growing company. He did it to the exclusion of the 401K mainly because he didn’t believe he would be at the company long enough to vest in his 401K and he was right. He left the company after about 18 months.

    It wasn’t horribly diversified, but it did end up being his best strategy to keep all of his eggs in one basket. And another year or so later we sold the stock to fund repairs on our newly purchased house. So it went to a good place. =)

    • Sounds like he did the best strategy. It’s the opposite situation at my company. My 401K is fully vested at day 1, and my ESPP takes me 3 years to see any real return. I buy my stock at full price, no discounts. When you are able to purchase stock with a discount, I think I would continue contributing to my ESPP, but right now I’m leaning towards not.

  • I opted out of the ESPP at my previous job, and I’m so happy I did given my departure from the company! I think it’s wise to diversify and look elsewhere if you’re not considering a long-term future with the company. It also doesn’t sound like the best option given the lack of discounts and the vesting schedule at your company!

    • Thanks Jen. I’m leaning more towards that direction. Gonna have to tell my hubby he might have been right a year ago.
      I’m probably going to cancel my contribution and increase my 401K before the next pay period in June.

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