If you work for a publicly traded company, there’s a good chance you’ve been offered an Employee Stock Purchase Plan (ESPP). These plans can be a powerful way to build wealth, but only if you understand how they work and have a strategy for what to do with the shares once you own them.
Unfortunately, most companies don’t dedicate much time to explaining the details, and the information is often buried within the flood of paperwork employees receive during onboarding or open enrollment.
That’s why it’s worth slowing down and taking a closer look at how ESPPs work, their pros and cons, and how to decide whether participating makes sense for you.
An ESPP is a workplace benefit that lets employees buy company stock at a discount, often 10–15% off the market price. Many plans also use a lookback provision, which means the discount is applied to the stock price at the beginning or end of the purchase period (whichever is lower). This can create immediate, built-in gains.
For example, let’s say your company’s stock was $40 at the start of the purchase period and $50 at the end. With a 15% discount and lookback, you’d buy shares for $34 (15% off the lowest price of $40). But as soon as you purchase the shares, they’re worth the market price of $50. That’s a 47% return on day one.
Here’s one of the big questions I get frequently asked: “Should I participate in my company’s ESPP?”
In most cases, the answer is yes, as long as you can comfortably afford it. I’ve worked with clients who were hesitant to participate because they didn’t want more exposure to their company stock. That’s a valid concern. But here’s the thing: you don’t need to hold the stock forever to benefit from the discount.
Think of the ESPP like a built-in coupon for buying stock. Even if you sell right away, you’ve essentially earned “free money” from the discount.
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This is the part where many people get stuck. Should you hold on and hope it grows, or sell and take the profit?
Here’s my general recommendation (though you shouldn’t take this as personalized advice): sell regularly.
Why sell instead of holding it? Because your paycheck, career, and future earnings are already tied to your company. Holding too much company stock puts you at risk if something goes wrong. I’ve seen clients in the tech industry who held on too long, only to watch their company’s stock price drop dramatically. By selling consistently, you capture the built-in discount and protect your financial future.
What I see most often is that people don’t sell and end up highly overexposed. This exposure can balloon quickly if they’re also receiving RSUs or stock options and stockpiling company shares from these various sources. The reasons vary: colleagues may talk about always holding (the psychological principle of the herd mentality), they may point out how well the stock has done, or sometimes it’s just inertia. People get busy with life or simply don’t know what to do, so they do nothing.
That doesn’t mean you can’t ever keep some shares. If you believe in your company’s long-term growth, keep a portion. But make it intentional, not just the result of avoiding a decision.
This is just as important if and when you decide to sell: have a plan for what to do with the proceeds.
Moving that money into a well-diversified portfolio spreads your risk across many companies and industries, rather than tying your financial future to the success of just one. A diversified mix of stocks, bonds, and other investments not only reduces volatility, it also helps create a steadier path toward your long-term goals. In other words, selling your ESPP shares isn’t just about avoiding concentration risk. It’s also about putting your dollars to work in a way that may be more likely to support financial freedom over time.
Here’s where it gets a little tricky. The tax treatment of ESPP shares depends on how long you hold them.
Let’s put this into plain English: the longer you hold, the better the tax treatment could be, but the bigger the risk you take on the stock price.
So, should you participate in your ESPP? In most cases, yes. Should you hold the stock forever? Probably not.
For most people, the smartest move is to enroll, buy at a discount, and then sell shares on a regular basis to lock in gains and avoid overconcentration.
Your ESPP can be an incredible wealth-building tool, but only if you use it with intention.
I help many clients navigate ESPPs, and I can tell you this: the biggest mistake isn’t selling too soon. It’s not having a plan at all.
If you’re unsure what to do with your ESPP shares, let’s chat. Together, we’ll make sure this benefit works as hard for you as you do for your company.
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About the Author
Carla Adams is a CERTIFIED FINANCIAL PLANNER® practitioner who specializes in helping women build strong financial plans around their equity compensation, including Restricted Stock Units (RSUs). With over 15 years of experience in financial services, Carla has in-depth knowledge and expertise geared toward helping clients with complex financial situations. She enjoys boiling down complicated scenarios through practical examples and down-to-earth conversations.