(originally posted here∞ #41699)

Hi everyone, new investor and very new reader here. Broader planning topic coming soon; first, a random question.

I had this crazy idea. Feel free to tell me how crazy it is. Since my ESPP vests immediately, I was thinking that it could be viewed kind of like a bond. Details, so far as I can divine them:

- Every quarter, money that I've designated to set aside for ESPP is used to buy shares at 90% of the market price. I can designate up to 15% of post-tax income toward the plan.
- As a validated ESPP program, there are no payroll/FICA/etc. taxes. I think.
- Since I'd be selling well before the 21-month holding period (18 + 3), I'd be subjected to standard income tax on the 10% purchase price savings.
- I am in the 28% marginal bracket -- close enough to the border that 401k & other pre-tax enlistments might put me down to 25%, but I'll stick with 28% for simplicity.
- Anecdotally, it usually takes less than a week for the new stock to show up in my Fido ESPP account and less than a day to execute a trade. The distribution dates are not near the announcement of quarterly earnings or any other major events. Thus, capital gains (and capital gains taxes) should be negligible in either direction.

Thus, every quarter I would gain something very close to 11.1% on ESPP-withheld money, incur taxes on 28% of the gain, and pay $8 in brokerage fees, while putting the rest of my desired savings into an ING account @ 3%. I'll call that Plan B, while Plan A is simply dumping the same total amount directly into savings each pay period (semimonthly). Let's say I want to save $1500/mo, $600 of which is eligible for the ESPP.

After one cycle: Plan A = $6,018.52 saved, Plan B = $6204.96 with $56.00 in tax liability
After three years: Plan A = $56,431.87, Plan B = $58,070.41 (subtracting taxes at the end of each year)

Or compared another way, that total is equivalent to having a savings account that earned 4.48% on the entire amount, not just the amount funnelled thru ESPP. The amount of the gain is virtually guaranteed, like a bond, while the balance remains FDIC insured. Of course, this "effective ROR" is much less pronounced the longer you need to save, and vice versa. Over the time I forecast it'll take me to save for a downpayment (just under 2yrs), my effective rate will be in the 6% range -- high enough to completely trump any thoughts of using traditional bonds or CD ladders. Am I missing anything? :)

Here's a spreadsheet∞ in case anyone wants to play around with the idea.

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