Q and A (with myself) About my Process

05/22/2017


Q: What does ESPP mean?

A: ESPP means Employee Stock Purchase Plan, and it’s a program that(possibly) most large publicly traded companies have created as an added benefit to their employees. A lot of employees do not know about this benefit.

Q: Why not just invest in my 401(k) or IRA?

A: This a good way to get a guaranteed average return of 10-15% on extra after-tax money. Call it a side-hustle, call it smart, call it good investing. 

Q: Is it worth it?

A: We all know the Cardinal Rule of not passing by free money, i.e., minimum retirement contributions that get matched by employer and tax-free contributions to retirement or health spending accounts that reduce your taxable income. The ESPP is another little-known benefit where your employer is giving you free money.

Q: How many companies offer this benefit?

A: It’s a little hard for me to find through online searches which companies offer these benefits, but from what was able to dig up, some of the biggest and best employers – such as big retail, and big tech – offer on average, a 10-15% discount on their stock to qualifying employees.

Q: When can I sell the stock?

A: The holding/investment/selling period averages 3-6 months from what I know.

Q: What are the yearly maximums you can invest?

A: The average maximum from what I could find is around $20,000 per calendar year.

Q: What method of investment is used?

A: You can either put in lump sum orders or use paycheck deductions.

-Call your HR/Retirement department to find out more.

Q: How much money should I put into this investment?

A: Here are examples of ways you can go about not putting up the whole maximum at once – If my maximum yearly contribution is $25,000 per year, then I can come close to this by rolling $8,000 through the process 3 times, or $6,000 4 times. The time that this process takes, instead of doing all $25,000 at one time, allows for dollar-cost averaging. And so far, I have beaten the 10% ROI mark.

Here is a scenario of the process I go through:

  1. I leave a voicemail before 12:00 AM to put in my order for stock to purchase at that day’s closing price. (Yes, this sounds too good to be true, I know.)
  2. The company emails me the statement of money that I owe.
  3. I quickly mail them a check for that amount because the clock is ticking – If they don’t get their check within 5 business days then I am restricted from buying more for 6 months.
  4. 90 day holding period elapses.
  5. I either sell the stock, transfer the money into my bank account, and put in another order, or I complicate the process by selling call options on 100 shares that either serves the purpose of gaining me another average of 1%/month, or it hedges my position when the stock goes down.

Thanks for reading! Let me know what you think or if you have any questions!

–KEN

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