Let's do the math: consider a typical ESPP (yours may vary) with a 3 month purchasing period, 15% discount, and no lookback policy. Assume you are contributing $5000 this purchasing period.
$5000 buys n units of stock at at a price of m dollars with a 15% discount: 5000 = .85mn
Immediately sell each unit of stock for m dollars for a total return of mn dollars: 5000 = .85mn => mn = 5000 / .85 = $5882.35
You made $882.35 in "profit". Not bad at all, but not much in the grand scheme of things either. But! That's a return rate of 882.35 / 5000 = 18% in just 3 months. If you could turn around and reinvest that money in the ESPP 3 more times (4 investment periods, each 3 months long, for a total investment period of a year), you would get a yearly return of (1 + 18%)^4 = 94%. 94%! Risk free!
If that seems to good to be true, the catch is in the first paragraph. An ESPP might provide 94% yearly returns, but the amount you can invest is relatively small. But it's free money, and I encourage everyone who can to take it.
Edit: some people have rightfully pointed out that "risk free" is an exaggeration due to the possibility of significant price swings in the time between the stock purchase on your behalf and you selling the stock. You may also be unable to sell immediately due to black-out periods. Also, this isn't financial advice and I'm not an expert.
(Source: saw it happen.)
The good thing though is that you may withdraw all the money until a few days before offerring time end. Useful in situations of uncertainty like here.
Source: experience with Lyft ESPP
Example: Stock @ $100 on the offering date and you are able to contribute $10,000 for 6 months. Stock dips to $25 on the purchase date. With the IRS Limit of $25k, you are only able to purchase 250 shares max ($25k/$100). Thus with a 15% discount on $25, you'd only be able to buy $5312 worth (250 * 21.25) and get a refund of $4688. In total of cash and stock, you'd have $10,938, which is still a gain, but only half the gain you expected.
Obviously, this is somewhat of an extreme example, but not wholly unprecedented in the current markets. And as stock prices remain low, the IRS limit isn't as far away as you'd expect for some stocks.
I won't say no to an extra 2k a year but it's not a exactly a deal breaker if I'm changing jobs.
IIRC we used to be able to contribute more than 15% of salary. I recall nearly doubling my base salary in the late 90s by putting something like 25% in. That was a particularly sweet ESPP in that they set the price to be the lowest in the last 2 years. Now I think it's always the lowest in the quarter or half that you're participating in so not nearly as lucrative as it used to be.
Immediate execution isn't always possible due to the processing time of shares to your brokerage account and then execution of the trade, but also if your company grants the ESPP shares and it coincides with a black-out period. This adds to the risk you might be taking on.
Still usually an amazing return for the time/effort required, but caution all around.
First rule of finances: When comparing options, never compare rates. Compare absolute amounts (i.e. Dollars).
Yes, it's a great rate, but there are other investment schemes that can make you a lot more money at a lower rate.
(Of course, I participate in ESPP and am not trying to dissuade anyone).
I did get it to load something once - it's not super clear. Based on the dates you enter, and the stock ticker, it'd be nice if it looked up the offering price.
I'm not actually sure how useful of a tool it really is... is it for convincing people who aren't maxing out their ESPP that they should?
I actually use it to optimize for how much to contribute because when the stock falls you end up hitting the convoluted IRS limit, which degrades the effective return on the total amount of contributions.
To effectively figure out the 25k limit you need a history of prior contributions to know how much limit is left in each tax/calendar year.
Because it's always worth contributing the max to ESPP no matter what happens, then selling as soon as possible, if you have that. None of the tax optimization stuff is worth it. It's just an option to get 15% more money in exchange for getting paid once every six months.
My company limits us to a maximum of 15% of your total compensation in addition to IRS limits. I set it to 15% and let them sort out the IRS math.
The is nothing in either "About" or the disclaimer.
TLDR: Google Analytics is installed to track visits, but all of the form data is kept in the client, because the calculations are all done on the front-end.
Related, my company's rsus seem to force the option "sell-to-cover" for tax purposes upon them vesting. Bleh.
Since stocks generally go up, waiting (2 years - offering period) for QD to use discount % x FMV at start of offering period can be more beneficial than discount % x FMV on purchase date, because you may end up paying less ordinary income and more cap gains. However, you do need to incur more risk to hold an individual stock for 2 years. Conversely, if the stock goes down then DQ may actually lead to you paying less in ordinary income, so you should pay attention to how the numbers look, how confident you are in your company's equity and what your IPS says.
