The Surprising Secret Way To Get Rich From Stocks Without a Huge Investment
Written by
Jordan Rosenfeld
Edited by
Brendan McGinley
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Many people want to invest in the stock market but feel like it’s out of reach. Between everyday expenses, debt and rising costs of living, it can seem impossible to set aside enough money to start investing. But what if your employer already offered you a built-in way to do it and even threw in a discount?
That’s exactly what an Employee Stock Purchase Plan (ESPP) does. It’s a benefit available at many U.S. companies, yet millions of workers overlook it every year.
“An ESPP is a plan that allows you to buy shares of your company stock, typically at a discount,” said Chad Gammon, CFP and enrolled agent at Custom Fit Financial. “You choose ahead of time how much you will contribute to purchase for a period of time, and then at the end of the period you buy the stock. The discount can be 10% to 15% off the market price.”
That discount alone can create instant gains, and over time, those gains can add up to serious wealth.
How an ESPP Works
An ESPP lets employees purchase company stock through payroll deductions, a couple of times per year, at a discounted price. For example, if your company’s plan offers a 15% discount and the stock is trading at $100 per share, you can buy it for $85.
Gammon explained that the math works in your favor even if the stock dips.
“Let’s say your company offers a 15% discount and the stock at the beginning of the period is $100 per share. If the stock at the end of the period is $110 per share, you are still buying the stock at $85 per share,” he said. “If at the end of the period the stock price is $90, then you get 15% off the $90 price, or $76.60 per share. Ideally, the stock goes up and you get a larger gain, but even if the stock price goes down, it can still make sense.”
How Much You Can Actually Make
So what kind of returns can an average worker expect? That depends on the company and your level of contribution.
“If the company is pretty stable and you were able to max out the contributions, I’ve seen people earn a few thousand dollars in a year,” Gammon said. “If the company does well during that time, the earnings can be higher.”
Even if you’re not investing large sums, small, consistent contributions can grow quickly thanks to the power of compounding interest. Workers who reinvest their gains or sell and diversify over time can use ESPPs as a stepping stone to other kinds of investing.
Why So Many Employees Miss Out
Despite the benefits, ESPPs often fly under the radar.
“I think the first reason is that the terms confuse a lot of employees and they don’t understand how the plan works,” Gammon said. “I also think HR doesn’t promote these plans as much as other benefits. Lastly, people I’ve met don’t believe they can afford another payroll deduction.”
But even small contributions can make a difference. Setting aside just $25 or $50 per paycheck could yield hundreds in discounts and gains by year’s end.
The Biggest ESPP Mistake To Avoid
Like any investment, ESPPs come with a catch: holding too much of a single company’s stock can be risky.
“At some point, it is beneficial to diversify what you’ve earned at a discount,” Gammon said. “Sometimes employees have a hard time selling their company stock compared to other investments.”
Financial planners typically recommend keeping no more than 10% to 15% of your overall portfolio in your employer’s stock to avoid a financial hit if the company struggles.
How To Maximize Your ESPP
If your company offers an ESPP, start by enrolling as soon as you’re eligible. Contribute whatever you can comfortably afford so you can take full advantage of the discount. Consult with a financial advisor or accountant if you feel you need more information. They can advise you on steps such as setting automatic sells or diversifying the stock into index funds after each purchase period.
You’ll also want to be aware of tax rules, as profits from ESPPs may qualify for favorable long-term capital gains rates if you hold the shares for a set period.
ESPPs are one of the simplest, most underused wealth-building tools available to American workers. They offer a way to invest regularly, automatically and often profitably, without needing thousands to start. If your company offers one, it’s worth taking a closer look.
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