Should I Invest in My Company’s Stock Purchase Plan?

Investing / Others
1

Hello,

My company (LVMH) is offering a stock purchase plan with several benefits: a 20% discount on the current market price and one free share for every share bought (up to two free shares). There are no account maintenance fees as long as I remain an employee. However, the 20% discount and the free shares are considered income and will be added to my salary certificate.

I’m wondering if I should invest in these shares or continue focusing on buying ETFs (world which is more diversified). What would be the best strategy, especially if the stock price fluctuates? Is this worth investing in this Stock Purchase Plan?

Thank you for your advice!

2

I guess a key question is what conditions come with it. Can you sell it later to buy an ETF? How long do you need to keep the shares?

If there are no extra conditions this feels like basically free money (modulo some bureaucracy). If there are conditions forcing you to keep these shares for a while it becomes a tradeoff between the extra risk vs. your normal allocation and the extra money.

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3

Do you believe in the company ?
What is the retention policy ? Do you intend to still work in this company ?
Will the free share be vested in 3-5 years ? You could then cash out these shares in few years and buy your etf at this moment for diversification.

Do you need to take from your saving to buy these shares or will it be deducted from your futur salary ? It will be then comparable to a mortgage with no interest.

If it was me, I will at least by the minimum to get the free shares. I won’t invest more than 10% of my net salary in it. If you manage to save 40-60% of your salary the rest can be diversified in ETFs.

4

You missed the key part - after how many years (of staying with the company) do you get this 2x?

It’s still way better than any other ESPP I know of (usually you get 30/50% on top, after 3 years), so I would go in a bit more than moderately - assuming you at this time plan to stay with the company for that number of (vesting) years at least.

5

I’d pretty much max. this out, but yes some info is missing - how long are these shares blocked etc.

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6

I was in a similar ESPP - without the shares being blocked from selling right after they were bought: That was a no brainer!

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7

How and when is purchase price set?
Vested period necessary, regularity of purchase is quarterly/yearly? Or free to sell after purchase? Further escalators if shares untouched for a period of time?
Purchase cap max? Typically 25k USD/yer due to US laws.
Deductions of sallary for puchase - typically its monthly percentage based or fixed amounts.

Most important is the purchase price period and how much potential for correction downward there is at purchase. Model it yourself, too many variables. Some ESPPs are a dog with fleas and require you to stay invested into a single stock for too long. Or purchase price is set too far from execution time, no proper lookback, etc.

If you can sell it outright and at/near strike, its ~20% free (taxed) income on the typical 25k USD invested. But each ESPP is different. Keeping the stock longer than few days - would you put your own money to buy it? Unlikely, eh.

8

Additional 5% discount as of this morning. :grimacing:

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9

That‘s an insane offer and I‘d buy as much into it as I can, then immediately sell the shares once vested and buy VT/your etf of choice with it.

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10

Great company, the only two things I don’t like is:

  1. their current price
  2. they’re French: to get the withholding tax back is a major PITA, basically impossible for a retail investor

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As others have suggested, buy as much as you can and then probably sell.

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11

Only if you don’t hate free money! :smile:

My company introduced the same this year. Allowed a small quarterly purchase. 20% discount. Can sell immediately. It’s free money, so I take it!

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12

Also check the tax situation in your canton of residence, not 100% of the discount and free shares might be taxed.

I am in a similar scheme (1 stock free for 2 stocks purchased; vesting period 2y) and only 50% is taxable (Aargau).

13

Thank you for your answers.

I get directly these free shares and these are invested directly also.

If I leave the company, I will have to pay €35 per year in account fees unless I sell the shares. Another disadvantage is that I am required to hold the shares for three years, unless I leave the company.

The problem is I don’t think I will stay for more than 2-3 years so I will have to sell these shares in a short term…
That’s why I’m asking your help here.

Is the offer advantageous enough to invest in these shares for a short term of 2-3 years maximum?

14

So these are the 2 key bits of information you left out of the initial post.

I’d personally attach the probability/likelihood to me staying in the company for next 3 years (+maybe adjust a bit for the initial 20% discount),
and multiply it by the maximum allowed contribution. :slight_smile:

If you know you intend to stay for 3 years at least, it’s a no brainer and I’d max it out.

15

Yes and no. If the discount is considered a portion of your salary you’ll be taxed on it.

16

If you don’t want to be exposed to the share price, you can just make a corresponding short sale in IBKR and when you receive the shares, you can transfer to IBKR to close out the transaction.

17

It’s still free money!

18

Probably forbidden by policy :wink:

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19

The difference between the final capital gain and the income tax paid is indeed free money.

If the amount at stake is important, why not.

This system is particularly convenient for the employer, who does not need to pay cash to the employee.

20

Yeah, shorting your employer is often a pretty bad idea.

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