Archive for September, 2007

Profit from Employee Stock Purchase Plans (ESPP) – II

September 16, 2007

11 comments

It is trickier to earn an almost guaranteed profit from the Employee Stock Purchase Plans (ESPP) usually offered by Canadian companies. In a typical plan, the employee contributes a set percentage of base pay (say 2%), which is matched partly or fully by the employer and the total proceeds are used to purchase company stock at market value once during every pay period. This flavour of ESPPs differ from those offered by US-based companies in two ways:

  1. Stock is purchased regularly. If you are paid bi-weekly, for example, company stock is purchased 26 times every year.
  2. The percentage of contribution is lower (typically 2%-5% of base salary) but the company match is higher (typically 100%).

The first step in profiting from these plans is to figure out how much company stock you should hold. Personally, since my pay check already depends on the financial health of my employer, I would limit exposure to my company stock to 5% of our total portfolio. The exact percentage depends on your personal circumstances but you should be cautious about overloading on company stock. It is natural to feel confident about your employer but risky to have too much of your portfolio riding on the same place your pay check comes from.

My spouse participated in this variety of ESPPs with a previous employer and we had strict rules on the account: the total value of the company stock could not exceed 5% of our total portfolio and if the stock trades at 20% less than our average cost base, we would sell immediately. It turned out that the stock treaded water for about three years and when it went up about 25% from our ACB, we cashed in. I don’t have a good reason for selling except that I had no idea how to value the company and it seemed prudent to bank the profits.

This and That

September 13, 2007

6 comments
  1. Jonathan Chevreau recommends adopting guerrilla frugality to build wealth.
  2. Toronto area stockbroker Preet Banerjee has written a 12-part series on life insurance. You can start with Part 1 here. I found the last post in the series (deals with how much life insurance you need) to be the most useful.
  3. Inco, Falconbridge, Dofasco, Four Seasons, Hudson’s Bay… Fortune magazine reports on the frenzied foreign takeover of Canadian companies.
  4. Can Tim Horton’s succeed in its expansion plans in the United States?

Canadian Tire One-and-Only Account, Part II

September 12, 2007

17 comments

Both The Toronto Star’s Ellen Roseman (thanks for the mention!) and Financial Post’s Jonathan Chevreau have pointed out that the Canadian Tire’s One-and-Only account has an advantage that I had overlooked: the mortgage can in paid in full at anytime, whereas a conventional mortgage has limited prepayment privileges.

Personally, we have a fixed-rate, 5-year mortgage that allows us to increase our monthly payment by 25% and make a total annual prepayment of 20% of the original loan value without any penalty. A lump sum prepayment of any amount (as long as the total annual prepayments stay within the 20% limit) can be made at the same time as the regular mortgage payment. Even though we pay down our mortgage aggressively, I find it difficult to make the maximum prepayment every year. I wonder if the open nature of the One-and-Only account, albeit at a higher rate, will appeal to many mainstream customers.