it's brian preston the money guy
um okay uh this one is from stitcheroo
question i get discounted company stock
through my employee stock employer stock
purchase plan
at what point if ever should i flip
company stock
to other investments so here's what i
think is stitch is actually asking
what's an espp should i take advantage
of it
and if i take advantage of it does that
mean that i just hold that company stock
forever
yeah i we actually really like employee
stock purchase plans when you ask what
an espp is that's what it
employs stock purchase plans where your
employer if they're a public company
they might give you um just like they
give you free money in your 401k they
might also give you a sweetener for
buying the individual stock of the
company
um you know and here's what i like to
see is it's you'll often see that
they'll say hey we're going to give you
a 15
discount and we'll go buy at the cheaper
price either at the beginning of the
quarter or the end of the quarter
wowzer that's that's two pretty powerful
things i mean those are
if you can tell me that you go by lowest
of beginning of the
the quarter into the quarter that's got
to be a great opportunity and then you
tell me you're buying it 15
off that's another incredible
opportunity that sounds a lot like free
money for my employer at least
subsidized so that's why we consider
that part of step two
of the you know financial order of
operations so don't
don't miss out on that opportunity but
there's a cautionary tale here it's
because it's very exciting that it's
free money
but we always have to be mindful that we
have our human capital meaning the hours
that you can put towards your wages and
working
we want to be careful and mindful that
that doesn't overwhelm
your investment capital because you are
trying to build financial independence
and if everything's at one employer
that gets a little scary in the long
term
so i'm perfectly fine with people doing
the employee stock purchase plan
but you just need to have a systematic
way to get out of it now
i come from a tax background so i'm
always trying to figure out how we can
legally
minimize minimize the tax bill so i like
um probably and you're probably gonna
differ i don't know i can't wait for
your opinion on this
but i like where people do the employee
stock purchase plan
they actually sit on the shares for a
year so you get long-term capital gain
treatment
and then having a systematic process
because there's really only a
time 12 month lag time on this
this plan because then you're
essentially laddered every year you're
just going to flip
those shares once they're long term and
put them out there in your army of
dollar bills and diversify them into
something else i love it brian if you're
participating in the espp you're on this
treadmill right
so like it keeps replenishing and then
you sell off and you sell off
i think that's great advice oh you go a
different way in most circumstances no i
think that's great advice
uh if perhaps though i'm just gonna
throw a caveat out there
if you're someone who has a lot of
employer exposure let's assume that you
get
rsus that are granted to you every year
and additionally you have a lot of stock
options
that are unvested or vesting over the
years or maybe they're weighing the
money but you don't exercise those
so you have a lot of your company stock
exposure
it may not make sense for you to
participate in the espp plan
and continue to hold those shares
because you already retain
so much exposure so you say okay well
what's the alternative
well if your plan allows you can
participate in the espp
plan you can get the fifteen percent
discount and then assuming you can you
can make a liquidate now
you are right it is slightly less tax
efficient because you're gonna pay
ordinary income rates
as opposed to long-term rates however
you are paying ordinary income tax on
free money right so it's kind of like
you know it's it's
you're paying more tax but you still get
it but you're also allowing yourself to
control the total exposure if you are
one of those executives that fits into
that
place where you have those three
different buckets of employer exposure
you just want to make sure you have a
plan in place on how to navigate
them all and tie them all in together
because they all are treated differently
all behave differently
i like it when we disagree on stuff oh
we didn't really disagree we just kind
of just added a little bit
a little extra a little sweetener
you