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Comment by allgreed | Hacker News Reader

I’m not sure I follow your argument about ESPP.

It’s almost always the case that maxing out your ESPP contribution is a good idea instead of getting the money earlier and investing it in something else. It might even be worth getting a loan and still maxing out the contribution should you require more cashflow (because 10% loan is still cheaper than missing out on ~90% return). But the t return is limited to your max contribution percentage * your salary, therefore you still need to think about what to do with rest of your money.

How making more money in absolute terms in some other investment invalidate the above?

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Yeah, the standard ESPP I’ve seen (twice now) is essentially a series of call options (at 6, 12, 18 and 24 months in the future). If the option is not 15% in the money at vesting, the plan resets and it is replaced by one that is in the money.

Look at the price for actual call options at these intervals and you will have an approximate idea of the value of this financial instrument. It’s probably substantial, almost certainly more so than the opportunity cost on your money (unless you must meet critical expenses or pay off credit card debt). And if you always sell the same day you buy, the risk is quite low (if the plan is at its bottom and the stock price falls 15%, basically, but most ESPP dates are just after earnings which limits the types of surprises you’re in for).

> It’s almost always the case that maxing out your ESPP contribution is a good idea

I completely agree. I did say I'm pro-ESPP.

The key point you miss is that the amount you can make is somewhat capped - and for many companies, the cap is 5% of your salary. It's almost always nice, free money, but most of the times it's a relatively small amount of money. It should not rank high in your whole investment scheme.

To take things to an absurd level, I can offer you a deal: You give me $1 (and cannot give more), and 6 months later I'll give you $10. That's a 9000% rate of return. Fantastic deal, right? But is it a big part of your investment strategy? I hope not.

> How making more money in absolute terms in some other investment invalidate the above?

It doesn't invalidate it. The trouble is when people focus on the rate of return more than the absolute amount, and decide to pick ESPP instead of investments that will make more money. When you look at absolute amounts, it's clear that ESPP, even though is good, is inferior.

If you do both, then it's not a problem.

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