An employee stock purchase plan (ESPP) offers many benefits.
You Acquire Ownership In Your Company
By participating in an ESPP, you become an owner in your company, with all the financial upside and risks that any investment can bring. An article in San Antonio Express-News explains some of the benefits that ESPPs present for you and your company. As one store manager explains, an ESPP makes employees "enthusiastic" because they "feel like it's their company." As employers eliminate company stock as a 401(k) investment choice, they are are making ESPPs more attractive as an alternative way to acquire company shares.
Special Purchase Opportunity
Depending on the type of ESPP and its features, you may be able to purchase stock in the company at a discount from its fair market value. Alternatively, some companies have an open-market purchase plan, which offers no discount on the price but allows employees to purchase shares periodically without the usual brokerage fee.
A survey of ESPP participants by Fidelity Investments found that ESPPs can help to improve employees' financial well-being. A separate Fidelity survey shows how ESPP participants used funds from ESPP stock sales to improve financial wellness.
An ESPP also lets you take advantage of something called dollar-cost averaging. In this concept, you invest the same amount of money to buy stock regularly through payroll deductions, regardless of the stock price, so you end up buying more shares when the price is down and fewer when the price is up. While dollar-cost averaging does not ensure a profit or shield you from a loss, people who use dollar-cost averaging generally tend to pay less per share over time than those who purchase shares all at once.
See related FAQs for details about Section 423 tax-qualified ESPPs and why they are a great deal.