Dec 10, 2016
Financial Safety
There is a saying in investing, you get what you don't pay for. That is because the stocks, bonds, and mutual funds that you purchase are all the same; the difference is the fees and services that you pay for. A unique type of purchase is the Employee Stock Purchasing Plan (ESPP). Employee Stock Purchasing Plans offer a lot of positive benefits but if you are not careful, they may cost you more than you think.
My company's ESPP will match $0.15 for every $1 up to the first $1800 I invest. The company is large, unlikely to experience large growth, and offers a dividend yield of 2.85. Maxing out the ESPP was a no brainer for me. Getting a match of $0.15 meant that I was essentially getting a 15% return on investment immediately. Maxing out the $1800 contribution would earn me $270.
However, there are drawbacks to the ESPP. The first is that we are buying a single company's stocks, which are more risky than diversified portfolio. When the company does well, then great; but if they struggle, then it is likely that the lost will wipe out any gains even from the company match.
Unlike other plans, this ESPP will purchase the shares at market price during the pay period rather than the lowest price within a 3 month period. This means that the purchase price is more likely to fluctuate, where it could be bought too high when all the employees in the program buy resulting in fewer shares acquired. All purchases are done at market prices, you are not able to set limits or other conditions for purchasing or selling. The company uses the broker Computershare to manage the purchase and sells of it's shares. Computershare does not charge for the purchasing of shares, but they do charge $25.50 for each sell transaction along with a $0.25 fee for each share being sold. The company's stocks are $70 a share at the moment, so if I had bought and sold the shares right away, that $1800+$270 would get me 29 shares. Selling those 29 shares would cost about $33, much higher than most transaction fees from other brokers.
Fortunately the Financial Industry Regulatory Authority has a program for transferring shares between different brokers, the Automated Customer Account Transfer Service (ACATS). If I can have Computershare purchase the shares, then transfer the shares to another broker when I sell, I can potentially save $33 annually on service fees alone. Unfortunately my current broker Robinhood does not currently accept ACATS transfers into the account. But I did find out that Vanguard does accept shares and does NOT charge any fees for accepting shares, and also that Computershare does not charge fees for sending out shares. So I will soon have my shares sent to Vanguard so that I will not have to pay as large of a fee when selling shares.
