One of the awesome perks of working for a large, publically traded company is the ability to (assuming they offer it) participate in the Employee Stock Purchase Program. I participated in one at my last job and participate for about 2.5 years, or about 5 cycles (each cycle is 6 months). A few months after leaving the company, they were actually sold to a private equity firm and are now a public company. I thought it’d be interesting to circle back and reflect on my experience being a shareholder. 

How ESPP works

Employers use a stock purchase program to further incentivize you to stay at the company and arguably work harder. Since you’re financially more tied to the company, perhaps you’ll be more incentivized to see them do well. I’ve now been a part of two ESPP programs and both worked similar. 

There are two periods throughout the year, once every 6 months. About a month prior to a new period starting, you can enroll, un-enroll, or change your contribution amount.  Each company will define the max you can contribute, whether a percentage (like 10%) or a dollar amount (like $10,000). Then, each paycheck the company will pull out and hold that amount you’ve elected to contribute. At the end of the period, they’ll then purchase the shares for you. They’ll have different policies but typically they’ll give you 15% off the lower price of the start vs. end period. So, it the stock was $100 on Jan 1 and $150 on May 31, you’ll get it for 15% off $100, as that was the lower price. You would then purchase shares for $85 and automatically they are worth $150. Some companies may require you to hold the stock for a year, others may let you sell it right away. 

Assuming your company is growing and the stock is increasing in value, it’s an incredible deal for you! 

What my experience was contributing

I started off contributing the maximum, 10% of my paycheck towards ESPP. The company was in a huge growth period and the stock was doing well. I made a nice profit that first go round, I think buying shares at $115 when the price was $135. Future period saw me buying at $95 when the stock was worth $125. I think during the third 6-month period I scaled back a bit, to contributing 8% of my paycheck. I had a few other saving/investing goals in my life so I needed a little more money in my paycheck. All in all I made money each period I invested, and every period the stock had increased in value. I was able to make a good return on my investment! 

My strategy throughout

I’ve always bit a bit risk averse, particularly when it comes to our finances. Well, I’d say a risk mitigator, instead of actually being risk averse as I do take some measured risks with my money. Jim Cramer (a famous investor/TV personality) always says that “no one ever got hurt taking a profit”. I took that to heart with my company stock, and would sell off a few shares when I could. Each 6 months I was getting about 20-30 shares, and each time I could (after holding for a year as required by my company), I would sell 5-10 shares. I was a bit nervous having too many of my eggs in one basket. A high growth company tends to be a bit more volatile, meaning it’ll have good times and not so good times. The company I was at experienced ups and downs, and it was super tough to stomach when I saw it go down. I had a lot of money tied up in the stock and it sucked to see it vanish. So, that’s why I would take so money off the table, go ahead and lock in some profits and to help me sleep better at night. 

How I feel now that it’s sold

Seeing the company get sold was of course a little bittersweet for me. However as an investor, it was a nice payout for me, as the buyer offered a premium (i.e. a higher price) to what the stock was at. I think the stock was around $120 and they offered $135 for it. So, all in all, I made a fair amount of money by participating in the ESPP program and holding onto company stock. 

Now what 

Now that the company has been sold, all my shares were bought out at the agreed upon price of $135. I now have a fair amount sitting in cash in my brokerage account. My plan for the money is to continue investing it. As I just had a kid, I’ll use part of that money for Baby Money Finance’s 529 plan (college education fund), where it will grow tax-free over the next 18 years. The rest of it I plan to invest in an index fund, where I expect it to grow with the rest of the stock market. 

If you have an Employee Stock Purchase Program available to you through work and you’re able to contribute to it, I would highly recommend you do so!