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My company has an employee stock program in which employees put a percentage of their paycheck into the company for a period of time, after which they can purchase shares at the lower of the start and end market price of the period, less 15%. At the end of the period, employees can sell and thus gain a profit of at least 15% (minus ordinary taxes).

My investment philosophy is that which involves only investing in no-load, low fee mutual index funds tracking the S&P. However, I believe the employee stock program would result in a higher profit that can be reinvested in a mutual fund, as opposed to forgoing the employee stock program and investing strictly in the mutual fund.

The shares in my company's employee stock program just vested and I wish to sell it and move into a no-load, low-fee mutual index fund tracking the S&P. This will be my first time doing so, out of a 401K.

The question arises as to the mechanism by which I do this-- lump sum investing or dollar cost averaging.

I intend on holding these stocks for 10-30 years before selling, depending on whether or not I wish to start a business or obtain a down payment for a home. For the time being, I will never add to this mutual fund except for when I sell the stocks in the employee stock program, as my total investment dollars are allocated to the 401K and the employee stock program.

I am inclined to sell tomorrow morning and transfer the returns in a lump sum into a mutual fund tomorrow afternoon. I am a long term investor, and if the market crashes tomorrow evening while I invested a lump sum at the height, I won't sweat it as I wouldn't touch the money for at least 10 years (assuming I even start a business; otherwise it would be 20-30 years). If the market goes up for 6 months and then crashes, the gains in those 6 months would be irrelevant as I intend on investing for the long term.

In other words, if I am a long term investor focused solely on no-load, low-fee mutual index funds, should I spend the time and transaction costs on dollar cost averaging when I receive a lump sump, or should I just invest it all in one lump sum and be done with it?

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I think you're not applying the right time scale here.

ESPP (Employee Stock Purchase Plan) is usually vesting every 6 months. So every half a year you receive a chunk of stocks based on your salary deduction, with the 15% discount. Every half a year you have a chunk of money from the sale of these stocks that you're going to put into your long term investment portfolio.

That is dollar cost averaging. You're investing periodically (every 6 months in this case), same (based on your salary deferral) amount of money, regardless of the stock market behavior. That is precisely what dollar cost averaging is.

  • +1 - Maybe OP thinks DCA means monthly? – JoeTaxpayer Jul 7 '14 at 18:06
  • Well that is a good point. However I was figuring that I could invest 1/6 of the lump sum I get from selling the ESPP and sell it each month for 6 months, as opposed to investing the whole lump sum on one occasion. – Matthew Moisen Jul 7 '14 at 20:47
  • to what end???? – littleadv Jul 7 '14 at 22:41

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