I'm just finishing up paying off my student loans (woohoo!) and am starting to look at places I can put my money to make it work for me. I've read Kobliner's Get a Financial Life and am interested in starting with ETF's, but I have a slight dilemma.

I work for a medium-sized company that is publicly traded on the NYSE1. They offer a program where I can allocate up to 15% of my paycheck (after tax) to buy their stock at 85% of the price. The only stipulation being that I have to hold it for 180 days (~6 months).

To me this seems like free money. The second that stock is bought, I've already made 100/85 => 17.6% on my money!

I'm very tempted to allocate the full 15% of my paychecks to this, but I know that it's important to diversify my investments.

I was planning to use 20% of each paycheck to play with for investments--would 15% company stock/5% ETF be diversified enough? Should I drop to 10%/10% or lower? Is there some reason I'm missing to not go all in on this?


I don't think this is a duplicate. The marked duplicate is asking (very broadly) how often "is good" to invest in an ESPP. I know I'm already going to be investing every chance that I get. My concern is one of diversification, which the duplicate makes no mention of. I've made it clear that I'm comparing between ESPP and ETF, while the duplicate seems to simply ask "what are your experiences with ESPP?"

1. It's worth noting that this company's stock has done incredibly well in the last 10 years. While I'm not expecting it to keep the same growth it has, this company is definitely not going anywhere anytime soon. An investment with them would definitely be safe. I have the utmost confidence in this company.

  • Got it, I think the choice on the diversification depends on your risk aversion and your expectation in the evolution of your company's stock price compared to the other investment options you're considering. I think is the same underlying answer as for the other question I linked to (and the posted answers look similar to me). Let's see what the other folks think, no strong preference, just avoiding duplicate information. Mar 7, 2019 at 21:10
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  • @Harper thanks for the informative link! Like I said, I'm not expecting the company to continue growing at the crazy rate it has been (or even at all), but I'm as certain as I can be that this won't be the next Blockbuster/Circuit City for the next 5-10 years at least.
    – scohe001
    Mar 7, 2019 at 21:27
  • One thing that might help us better evaluate this 'how much' question would be to let us know how much you intend to put toward investments? If you are only going to save 15% of ur paycheck, and 100% goes to company stock, that might be a lack of diversification. If you are saving 60-70% of your take home, 15% goes to company stock, 20% to 401k, 5% to an IRA, rest 35% to an after tax; then you have plenty of diversity to offset this one piece of your savings.
    – Shorlan
    Mar 7, 2019 at 23:14
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    I owned Enron back in the day when it was in the 60's. I regularly sold covered calls on it because it offered good monthly premium. As dumb luck would have it, after the last rally before the beginning of its swan dive, I was assigned and had to sell my stock. It's often better to be lucky than to be smart :->) Mar 8, 2019 at 22:10

5 Answers 5


It's not necessarily free money. If the stock declines by >15% in the six months after you buy it then you've lost money on the deal.

However assuming your company is performing at least reasonably compared to other stocks, you are, on average, getting a 15% bonus to your savings. You shouldn't be turning your nose up at that. (if whatever other stocks you invested in declined 15% after you invested you'd lose 15% instead of just breaking even).

There is a bit of a diversification factor in that not only would you be keeping your savings in one company, but its a company you work for. If it goes under, not only are you short some savings but you are also out of a job.

However the diversification problem is short term. You only have to keep the shares for 6 months, and you can sell them after that.

Let's say you are earning $50,000 and can afford to put $10,000 (20%) into savings. The first six months you put $7500 into your company, $2500 elsewhere. You are pretty vulnerable for that six months, but it's only six months.

In the second six months you again put $7500 into your company, but you also sell the original $7500. Now you have $7500 in your company but $12500 elsewhere. That makes you much less vulnerable. After a few years you are pretty diversified, and you've taken full advantage of the 15% bonus.

EDIT: I'm not recommending selling as soon as you can as necessarily the best strategy. Lots of factors would affect that. I'm setting out this scenario to illustrate how to maximize your diversification.

  • 6
    You make a good point that if I continuously cycle through the company stock I can drastically lower my risk and have healthy diversification after a few cycles. But you'd suggest dropping the stocks after the 6 month period and eating the short term capital gains tax instead of holding for a full year?
    – scohe001
    Mar 7, 2019 at 16:27
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    If it’s like other ESPP plans I’m familiar with, the discount is taxed as ordinary income regardless of how long you own the stock. If the stock price has gone up a lot in six months, resulting in a large capital gain, is it better to lock in that gain, or hold the stock for another six months to reduce taxes? It’s totally up to your risk tolerance.
    – prl
    Mar 7, 2019 at 16:54
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    @prl Ahh I thought the discount was taxed like capital gains, not as income. In that case I think you're right. Unless there's been a large increase in stock value it's probably better to drop it at 6 months.
    – scohe001
    Mar 7, 2019 at 17:09
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    Anyways it's moot because I for sure would sell that stock the minute I could. It's just too risky in my opinion to hold on to employer stock hoping you can save a bit on taxes.
    – stannius
    Mar 7, 2019 at 21:07
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    @Barmar - Since taxation takes away a portion of the 15% as well as a portion of the capital gain (whether LT or ST), it cannot wipe out the 15% discount. Mar 11, 2019 at 0:45

This is probably above your pay grade but if your company's stock offers options, there are a number of hedging strategies that would protect you.

The simplest one would be to buy 6 month puts whose break even was less than 15% out-of-the-money. You'd be throwing away that premium but it would protect you against all loss of principal.

As a random example, consider a similar 15% opportunity today with IBM at $136.00. 15% lower is $115.60 and below that you'd lose money. Buying the Oct 120 put (7 months) for $3.75 gives you a break even price of $116.25, below which you are 100% protected. The worst case scenario is that you make 65 cents and the best case scenario is that the investment appreciates above $136.00, providing an additional profit beyond the above numbers ($20.40 - $3.75 + share price appreciation).

If IBM were to drop to near or below $120 before October, the put would also gain time value and the net position would be worth more than the break even values. I'll leave it at that since this is another rung up the option food chain.

If I had this 15% discount opportunity with savings on the side and I wanted to hedge, my preference would be a modest debit OTM long stock collar - potential to make 10% more to the upside (above and beyond the 15%) and the potential to lose only 10% of the 15% to the downside (yes, another rung up).

If your stock does not offer options and I've you believe that it's a fundamentally sound company, I'd still load up on it, to the maximum of 15% if you can manage it. The 15% is absolutely free money. You may lose it due to market conditions but that 15% is not your money being lost.

Investors in the market lost 20-25% last December. I think that every one of them would be thrilled to have been shielded from the first 15% of loss. You're young and losing 15% of your salary in 6 months is painful but not the end of the world (your company goes belly up).

When I first started investing 40+ years ago, I opened a number of DRIPs with companies that offered a 5% discount on dividends as well as a 5% discount on new money. It definitely helped with the early stage of my accumulation phase.

And FWIW, I employ some synthetic option strategies that offer a downside buffer of 15-20% with an upside cap of maybe 10%. Most of the time, this is captures a large part of the up moves and avoids most of the downdrafts.

Should you decide to follow this advice and you lose it all, I'll be changing my handle ;->)

  • 17
    First sentence reads as tactless/rude. What benefit is there to suggesting something is above someone else's pay grade.
    – Hart CO
    Mar 7, 2019 at 17:58
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    Be sure to check your company's rules before buying put options; it's definitely prohibited at my company, presumably to avoid the appearance of insider trading. I bought put options to hedge against the industry instead.
    – Justin
    Mar 7, 2019 at 18:34
  • Option hedging is a complex strategy with many subtle and esoteric nuances. It is not for the sensitive and uninformed. Checking company rules is a very good suggestion. If prohibited then one could hedge via another highly correlated stock and better yet, as you suggested, you have hedge the sector. Either way may be problematic if the correlation doesn't hold. Mar 7, 2019 at 20:04
  • I bought some put options when my employer added a six month holding period. Shorting the stock was prohibited, but nothing about buying or selling options. None of my options ended up being worth anything more than peace of mind. But that's OK.
    – stannius
    Mar 7, 2019 at 21:10
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    I like the answer, but it almost assuredly a violation of company policy to buy a put in the company you work for. Mar 7, 2019 at 21:22

Think about Allocation

Ignore the discount for a moment. Ask yourself, "How much would I invest in my employer in a vacuum?"

50% of your portfolio? 5%?

There's some value that you are going to feel good about, based on your risk tolerance, and your evaluation of your employer. Give yourself a small bump for the 15% price discount, and target that number.


Say, without the discount you would be comfortable putting 10% of your investments in your employer and 90% diversified.

Bump the 10% up to 12% to account for the price discount, and go. After a year or two, reevaluate. If you still feel good about the company, consider selling the vested stock and moving it to your ETF.

Now your ETF is almost 100% of your assests - you can up the allocation for your company stock above 12% to rebalance toward the distribution you wanted. Repeat every year or two.

  • Note that the answer to "How much would I invest?" is likely to differ depending on the time horizon. You might not want to tie up a large portion for a long time, but for 6 months it could be OK.
    – Barmar
    Mar 9, 2019 at 22:33

One perspective is to consider the ESPP purchase as having the same restrictions, but purchased on the open market (and not associated with your employer):

  1. The stock in this case would be a comparably-performing company in the same sector as the one you're working at (such as a competitor).
  2. You have to escrow funds over the next six months to buy it
  3. When you buy it, you get a 15% discount off a start/end-of-period price lock
  4. You have to hold it for 6 months after purchase

If it's a good purchase under those conditions, it probably makes sense for you as an investment. Item 3's condition may be sufficient reason to buy the stock of any stable company on the open market under these terms.

  • Compared to these conditions, the deal offered to OP is worse, because it concentrates his investment risk and his employment risk together.
    – Ben Voigt
    Mar 11, 2019 at 0:15

It sounds like you and everyone else there have negotiating leverage.

Do not hesitate to discuss this with your manager and everyone else there, because they are asking the same questions.

read this thread: https://www.bogleheads.org/forum/viewtopic.php?t=185373

Are you really forced to "hold" the stock for 6 months?

Stocks can easily drop 15% for many reasons that have little to do with the companies performance:

  • lockup period expiring
  • a mild 10% stock market drop can easily cause a 30% drop in high risk equities

A good example would be SnapChat stock. Extremely successful app, but unfortunate if you bought it 12 months ago.

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