Should You Take Advantage of Your Employee Stock Purchasing Program

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The stock market is a risky path to financial success. While the rewards can be rich, the perils of the stock market are enough to make many people pause. Fortunately, many company employees have a chance at playing a safer market through an employee stock purchasing program. Depending on the success of your company, taking advantage of an ESPP could be a huge chunk of change for your nest egg.

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What is an employee stock purchasing program

An employee stock purchasing plan lets you buy your company’s stock at a discount off the market price. There are a few different core types of ESPPs, that center on the variables that each plan offers you. There are two features that make the biggest impact on the value of your program: discount, and lookback. Each company offers a blend of features. You should find out more about your company’s specific employee stock purchasing program before deciding how much to buy. No matter what plan your company offers, they’re all geared towards making sure that every employee, not just high level execs and investors, profit from a company’s strong performance. It binds the company together and encourages people to invest in their own company and, in a way, their own jobs.

Typically, employees can purchase company stocks through their employee stock purchasing program, through payroll deductions. You can put a portion of your income, tax free, into buying stock. Moreover, the taxes are deferred, and you can automatically invest. This is a great plan for people who are spenders rather than savers. You can’t spend your investment dollars because they never find their way into your pocket.

Discount

The discount for employee stock purchasing programs can be up to 15% off the market value. This is a great boon for employees. Even if the stock performs averagely or experiences only a slow, moderate gain, your personal profits will be 15% higher. This makes investing in your company a great cornerstone for a financial wealth plan. Of course, not every company offers the full 15% discount. Find out the specifics of your plan. While any discount makes your company’s stock a more attractive investment, the rate of discount may influence the amount of stock you want to purchase.

Lookback

This feature is a fantastic asset. If your company offers lookback features, grab some stock ASAP. Essentially, the employee stock purchase program has a purchasing period. While the length may vary, for the sake of example, your company’s purchasing period is six months. The price of the stock is recorded at the beginning and the end of the period, allowing you to purchase the stock at the lower of these prices. If the stock ends the purchasing period higher in price than it started, you have a much thicker layer of profit right from the start—you can purchase at the lower, starting price and already have a boost. Layer your company’s discount onto the lookback and you’re doing well.

In general, taking advantage of an employee stock purchasing program is a good idea. Even if your company’s stock is merely mediocre, your discount and/or lookback perks offer you an advantage over someone else trading in the same company. Just be sure you don’t put all your eggs in one basket.

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