NerdWallet's Smart Money Podcast - Employee Stock Purchase Plans and AI Travel Planning

Episode Date: August 28, 2023

Explore how AI can help with personalized travel planning, then learn about Employee Stock Purchase Plans (ESPPs). 01:08 This Week in Your Money: Travel Nerd Sam Kemmis discusses the surprising benefits of using artificial intelligence for personalized travel planning. He joins hosts Sean Pyles and Liz Weston to share his experiences with AI tools like Google's Bard and ChatGPT, including tips for guiding AI and validating creative suggestions before committing to a travel itinerary. The Nerds also explore the pros and cons of “mystery travel,” where travelers embark on journeys without a concrete itinerary in order to embrace spontaneity and adventure. 17:38 Today’s Money Question: Investing Nerd Andy Rosen joins Sean and Liz to help answer a listener’s question about whether he should participate in his company’s employee stock purchase plan, also known as an ESPP. He explains what an ESPP is, why it benefits companies to offer one, and tactics for employees to assess whether they should participate in one. The Nerds also talk about the risks involved with participating in an ESPP, how to plan for related taxes, and potential limitations on when employees can trade their stock. In their conversation, the Nerds discuss: artificial intelligence in travel planning, personalized travel recommendations, AI chatbots, Google Bard, ChatGPT, employee stock purchase plans (ESPPs), financial planning, diversifying investments, travel planning tools, mystery travel, investment strategies, and ESPP tax implications. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Buying your company's stock at a discount can be a nice way to turn a quick profit, but can it also leave you overexposed to a single company's stock? In this episode, we'll talk about whether you can have too much of a good thing. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Liz Weston. Listener, tell us, what do you want help with financially? Maybe you're sorting through your student loan repayment options or wondering how to earn your new travel credit cards, sign a bonus.

Whatever your question, send it our way. Try recording a voice memo on your phone and emailing it to podcast at nerdwallet.com or leave us a straight up voicemail on the nerd hotline at 901-730-6373. That's 901-730-NERD. We accept emails and texts too, of course, but we really want to hear your voices. In this episode, I answer a listener's question about whether employee stock purchase plans are a good option for retirement investing. But first, we are yet again calling on our digital overlords,

by which I mean artificial intelligence technology, to help us answer a few questions. And this time around, we're talking about how to use AI to plan travel. And joining us for this journey is NerdWallet travel writer, Sam Kimmes. Welcome back to Smart Money, Sam. Hey, great to be here. So Sam, people are using AI for all sorts of things these days. How do you use it for travel? Yeah, I was playing around with this for an article I was writing and found that it was so useful that I've actually been using it quite a bit. So I use Google's BARD and ChatGPT.

And what I found is it's really good for providing recommendations that I might not get just by Googling something or by looking in a guidebook or even by asking friends. I can get really, really specific with these chatbots and get really, really specific recommendations. Oh, interesting. So Sam, what's an example of that? Yeah, so this was kind of as a joke. I wanted to push chat GPT to its limits. So I gave it very specific interests that I had for a trip to Japan. And I told that, you know, I'm really into trains. I like being out in nature. I like weird stuff, kind of off the beaten track recommendations. I'm into meditation. You know, I just sort of

threw everything about me at it and said, you know, come up with a plan for me. And I was really shocked that it didn't just give me a cookie cutter idea. It gave me a bunch of interesting ideas for visiting Buddhist temples that are kind of off the beaten track, like I had asked, some historic train lines that have these interesting old cars in them, even some really fun cars like Hello Kitty trains and that sort of thing that you can only find in Japan. And then it hit me with this recommendation for a pilgrimage. It's actually a hiking pilgrimage that visits various shrines along this island in southern Japan,

which was the perfect recommendation for me, and I haven't done it. But I was sort of blown away haven't done it. Yeah. But I was sort of blown away with how personalized it could get. And did you have like a back and forth with it? Were you asking it questions or giving it feedback? Yeah, that is the game of these things, right? Unlike Google, where you just plug in your question and then hope for the best. It's a bit of this back and forth, like you're talking to a real person. And what I'd find myself doing quite a bit is saying, OK, that feels a little boring. Do you have anything more interesting or anything more specific to my interests?

That was a phrase I used quite a bit, kind of reminding it, hey, don't just give me travel tips to Japan, but really tailor it to me. And the fun thing is that once you start doing that, it kind of catches on to what you want. So the more you do it, the less you have to do it for future recommendations in that same chat. That makes sense because with these AI chatbots, the game is really playing how to get the best prompt to get them to give you the answer that you might want. So being as specific as you can to your interests and what they might be able to get back to you is maybe the best way to go about it. Yeah, exactly. I was using it for a couple of different purposes. One was to try to plan out a trip that we're taking to Austria. And I had the same experience that you did, Sam, that more information and the

more dialogue I had with it, the better it did. But then I tried to get it to actually plan a trip. Like, I wanted to go to five different cities. And I wanted it to plot out the most efficient route via high speed train from city to city. And it just started making things up. It decided that there was a train from Vienna to Copenhagen. And I said, No, there's not a train the way you said that. Well, no. And it kind of kept doubling down. It was like, Okay, well, there's not a train the way you said that. Well, no. And it kind of kept doubling down. It was like, OK, well, there's not that train, but you can take this train. And I kept trying to correct it. And it was just insisted that I could do this trip, which I really can't do.

That makes me wonder whether these services are better at surfacing recommendations rather than planning out the logistics of a trip, because those are really the two important components of any sort of trip, right? You have to know what you're doing and then how and when you're doing it. And when I was hearing you describe that journey or potential journey in Japan, Sam, my thought was, are they building a nap time? Because that's something I always want to build into my vacation. And I didn't hear that.

Yeah, that's true. Yeah, it didn't give me any nap recommendations. But it's a really good point on the two parts of travel and what these AI chatbots are good for. They're really creative. They're really good at coming up with things that you might not think about. But they can be a little too creative, like you ran into, Liz. And they can get a little overconfident and just make things up and really act like they know what they're talking about when they don't. So I would, you know, before I say, oh, I'm going on this

amazing pilgrimage based on what ChatGPT told me, I want to do some independent research on it to make sure it's a real thing that, you know, it's still available. There's all sorts of potential pitfalls. So use it kind of as an idea partner, but definitely not a travel agent. Yeah. Well, part of the limitation is that for ChatGPT, at least, they only have data through 2021. Yes, exactly. A lot of it's not up to date. And it can seem, because they're so smart, it can feel like they know everything.

But it's important to remember that they're working on historical data. So they have no idea what's going on right now. Maybe even in the example of that train, you know, it could be that there was a train line open in 2021 and it no longer is, but they are completely unaware of what's happening currently. So yeah, something very important to remember, especially with countries opening and closing borders and even roads being open or not and weather conditions. These are all the types of things that ChatTPT has no idea about. Sam, I like to ask my fellow nerds, including you, for travel tips or even read an old school guidebook. So how would you rank AI against those resources? Yeah, I think it's a compliment. I think, like I said, it's definitely not a travel agent, but it's more like a guidebook.

But what it can do is get really specific, right? So you might be going to Mexico City and you would look in a guidebook and see what the best restaurants are, but they're just going to be the best restaurants for everyone. And what if you want to say, well, yeah, but I'm gluten free, and I don't eat meat. So AI can start taking that information and saying, okay, given that you don't eat meat, and that you're gluten free, maybe you want to check out this taco stand. Or maybe you want to take a trip to this region with has really good corn meal, you know, these sort of really like specific niche recommendations that you would just never get from a guidebook.

And maybe not even a friend, right? Or let's say, you know, you have a family. You could look up family travel tips. But I find that that's really useless because there's a big difference between having a 12-year-old and having a two-year-old, right? Those are very different types of families. So you can say, hey, I have a two-year-old and I'm going to Columbia. What the heck can I do? And ChatGPT can start getting a little more creative there in a way that a guidebook or even a friend, right, who doesn't have a two-year-old and has

never been to Columbia can't really help you out there. Well, when you've used ChatGPT or these other AI services, Sam, have you found that they're missing that sort of nebulous human touch that you want when you're getting recommendations for travel? Yeah, you'll run into these jarring moments where you're reminded that you're talking to a machine for sure. And some of that is you'll dump your life story in there and then it will give you personalized recommendations. But they don't know everything about you. It's hard to put everything that you care about into a prompt. So a friend or even a coworker is in some ways going to know more

about your personality than ChatGPT ever will. So yeah, it's hard to get that really, you know, oh, you would love this specifically. Like ChatGPT is never really going to know that. Right. Like what I'm thinking of now is like, say you have a friend who loves art, but they don't really have the temperament or patience for a really busy museum. Maybe ChatGPT would say, oh, go to this museum. But if it's super crowded all the time, you as a friend of this person would know, hey, you're probably not actually going to like it. Maybe go super early in the morning or when they're going to close sometime where it's

not peak hours. Yeah, totally. ChatGPT kept recommending Disney Japan to me, which anyone who knows me would never do such a thing. So yeah. Okay, Sam, I'm going to step in here, but DisneySea is the most amazing theme park I've ever been to in my life. I believe you. Maybe you don't want to go with a two-year-old, definitely.

But next time you're in Japan, just drop in, check it out. You really will be amazed. Okay. All right. You see, I'm right. You're my friend and you're recommending it to me. I am. So Sam, I've heard that travel companies are also integrating AI into their booking platforms.

So what does that look like? Yeah, there's a few examples of this. One that I've toyed around with a bit is Expedia has added some AI into its app that will let you get recommendations and then save those recommendations sort of in the app. Some other companies like Booking.com and Airbnb are saying that they're adding AI trip planning and customer service at some point. Those are sort of rolling out slowly. Honestly, I would say at this point, this has all happened so quickly that a lot of these services are very much in the beta mode.

I haven't seen anything where I'm like, oh, wow, it's so much easier to book my trip using this AI tool. It's more like, oh, that's kind of a neat little add-on feature that they put in there. So yeah, some interesting things out there, but we're very, very far from the point where you're going to get on a chatbot and book your entire trip. Yeah. Well, if AI could help, then that would be great because right now chatbots really,

really suck. Yeah. Certainly those customer service chatbots are no fun. So any improvement there would be welcome. Okay. Now let's talk about what may be the opposite of AI-assisted travel planning. We're going to get off the AI track completely now. And Sam, we're going to talk about something you refer to as mystery travel. With this approach to travel, you have a much looser itinerary. Maybe you know when you're flying into a location and flying home, but what you'll be doing there, where you'll stay is potentially a mystery. So compared to the hyper planned out AI assisted travel, what do you see as the main draw of this more on the fly way of traveling? Yeah, I spoke with several travelers who had done mystery travel or surprise travel, as some people call it. And a lot of what I heard was that the big appeal was not

needing to plan, that there's this sort of paradox here where we spend so much time planning our trips and coming up with every little detail and knowing exactly what we are going to do. And there's something really freeing about just saying, I have no idea what I'm doing on this trip that I'm leaving for tomorrow. I don't even know where I'm going tomorrow. And it kind of relaxes that part of our brain that just wants to know, you know, and a lot of people said that was extremely appealing. I thought you were going to say terrifying, because that would be terrifying to me. Yeah, maybe, you know, pushing people out of their comfort zones a little bit. But I do think that there's this bit of adventure

that travel is really supposed to be about, that we're supposed to be doing something we've never done and getting a little out of our comfort zone and getting a little lost. And the more that our travel has become Google mapsified, we've lost some of that adventure in it. So I think this mystery travel trend is really trying to reclaim some

of that saying, you know, I'm striking out and who knows where I'll end up. Well, I love travel and adventure, but I also have huge FOMO when it comes to travel. I hate coming home from a trip and discovering there was something really cool that I missed. It was a block away and I didn't see it. And also if you're traveling during busy times, it can be hard to even get into places without reservations. So I get the appeal, but I'm like, ah, that's probably not for me. Yeah. It's definitely not for everyone. Yeah. I mean, I totally feel that. I try to take an approach of radical FOMO acceptance when I travel because I realized that you can never see everything that a city or a country

has to offer. So I like to choose a handful of museums, restaurants that I know I'm going to go to, but then also leave space for impromptu adventures. And like I said at the beginning, I'm always going to be building in nap time to my day because I need that. Yeah. What I've learned is that naps are the most important part of traveling for you, Sean. You know, one piece, one approach that some people have to this mystery travel idea is that they actually do it in friend groups.

So they'll just rotate every year who is planning the trip, and then whoever plans it keeps it a mystery to everyone else. So if you have a friend who you trust to build in nap times or to get the reservation at the restaurant that you really want to go to, then you can kind of entrust them with that and lose all the burden of having to do the planning

yourself. And then also, if it doesn't work out and you do have FOMO, then you have someone to blame other than yourself. Yes, exactly. I love that. Perfect. I will say my friends who I travel with, we always build in nap time, even if it's what we call phone nap time, where we just sit in silence and catch up on social media. It helps us feel rested. So anyway, well, Sam, thank you so much for talking with us. Thank you. It's always great. Before we move on, listener, I have a couple of updates for you.

First, I want to thank all of you who took our listener survey over the past few weeks. We are reviewing your really thoughtful feedback now, and I have no doubt that it will help us make the show more useful for all of you. And also, congratulations to Jessica in Colorado and Abimail in Pennsylvania who won our listener survey sweepstakes. I hope you guys enjoy those Amazon gift cards. And finally, I have an exciting announcement. I've made the jump from behind the mic to in front of the camera on new social media channels. You can find me on TikTok and Instagram under the handle SeanPiles underscore nerd wallet. Woohoo. So Sean, what's the deal with the channel?

So you finally going to become a personal finance influencer? Maybe if I'm lucky. Well, Liz, as you know, my favorite part of the job is connecting with listeners, whether I'm listening to voicemails, answering money questions with you or talking with them live on the podcast. And these new channels are platforms for us to carry on that conversation, get deeper into our relationships with money. And of course, I'll have all of the nerdy money tips that our listeners for us to carry on that conversation, get deeper into our relationships with money. And of course, I'll have all of the nerdy money tips that our listeners have come to expect. And in the end, my goal is to create spaces that genuinely help us all live our best financial

lives. That sounds aspirational. And listeners, you know, we've had a few negative things to say about personal finance influencers in the past, but Sean, you can listen to definitely. Thank you. Thank you. And I do want this to be a genuine space where I bring well-researched information to listeners. There are plenty of people out there who do just say whatever the heck they want and maybe aren't backed up by reporting the way that we at NerdWallet are. So I would say, listener, follow me on TikTok and Instagram. Again, my handle on both platforms is SeanPiles underscore NerdWallet. I'm going to spell that out for you.

S-E-A-N-P-Y-L-E-S underscore NerdWallet. And I'll give you guys a minute to pause, follow those accounts. Okay, thank you. That's it for this episode, week in your money segment. The money question is up next. Stay with us. This episode's money question comes from James who sent us an email. Here it is as read by NerdWallet writer Spencer Tierney. Hi, nerds. I hope you're doing well. I'd love to hear some of your thoughts on whether investing with an ESPP is a good option and whether to prioritize that over a Roth IRA or similar

investment. So some backgrounds. My name is James. I'm a 30-year-old male, married, and I have a one and a half year old. My wife and I make combined 180k a year pre-tax. I am maxing out the federal amount in my 401k due to a generous company match. My wife is not using her 401k as of this year, but we are starting to use a Roth IRA for her. There are no debts other than the house paying less than 2k a month for the mortgage. Thanks, James F. To help us answer James's question on this episode of the podcast, we are joined by investing nerd, Andy Rosen. Welcome back to Smart Money, Andy. Hi, Sean. Let's just say I'm ESP-patchily glad to be back with you today. Corny, Andy, corny. I'm not sorry. I'm actually not.

Happy to have you as always. Well, before we get into our listeners question, a quick disclaimer, we are not financial or investment advisors. All of this information that we are about to discuss is just for general educational and entertainment purposes. Okay, with that out of the way, Andy, you know, investing often requires us to wade into a murky alphabet soup and ESPPs are no exception. Can you please explain what ESPP stands for and generally what it is?

ESPP, it doesn't have anything to do with paranormal activity. It does stand for Employee Stock Purchase Plan. So when you participate in an ESPP, what you're doing is you're getting the opportunity to purchase shares of your company that you work for at a discounted price. Okay, so it's like a perk for employees of public companies, right? Absolutely.

And companies do have a few reasons that they offer them. Please, will you list them? Yeah. So for starters, it's a benefit, right? And why do companies offer benefits? Some are required by law. This one isn't. A company offers a benefit to distinguish itself from another in the eyes of a worker who might have many options when taking a job. For the company, this is also a perk that you can offer without paying for it in cash. So

with the discount, an employer may be foregoing a higher price they could get on the open market, but the out-of-pocket expense is lower than if you were just giving a dollar to an employee, right? Another reason is employees who own stock in a company may feel more aligned with management, and potentially they would be willing to work harder or make other sacrifices that could potentially raise the value of their shares. Because that gives them a different sense of ownership of the company because they quite literally have the stock. They own that. Right, exactly. If the company does well, your stock would go up potentially. So you'd feel pretty good about helping the company succeed and maybe less at odds with management or things like that. Of course, it might not solve all those

problems, but it can help. And finally, if a company has a large ESPP, the paycheck deductions that employees use to fund these shares can be a way to raise capital pretty efficiently and automatically. Just money coming in. So you've just listed a few reasons why companies offer ESPPs. What's the main draw for employees? Well, it's really the discount, right? Let's say you can buy a stock for 20% less than it's worth in the open market. That gives you a lot of choices, right?

You could sell it immediately and lock in a financial gain that would be hard to replicate elsewhere. If you hold it, you're starting with a cost basis, the cost that you actually paid for it that's lower than you'd get on the market. So if it goes up, your profit could be higher. If it goes down, your loss could be lower. And finally, there's one thing that I think it's really important to note for employees that are going to do this. You're not going to keep all the profit should you have any. There are taxes associated with ESPPs, including capital gains taxes. So the IRS is always going to be around somewhere when you're talking about buying and selling stock, right?

Yeah. So it might be a good idea for someone who is enrolled in an ESPP program to also hire a tax pro to help them sort out what this might mean for them. Right. I mean, presumably your provider that's running the program for your company will give you the forms you need. But you do want to consider what exactly this is going to do to your bottom line. Mm hmm. OK. Historically, I've been maybe a little too wary of ESPPs because I've heard that some financial advisors will recommend that their clients don't hold too much stock in the company they work for because the employee is already fairly heavily, quote unquote, invested in that company because they're spending 40-ish hours a week working for them. So do ESPPs risk making that problem worse for employees?

It's worth thinking about. I mean, if your company suffers some kind of financial calamity, you're already exposed even before you buy any stock. So say you own a bunch of stock in your company and you lose your job. So that's a big piece of your income and you've got big stock losses on top of that. And you're going to be in a pretty bad mood that day. And there are other risks too that are specific to being employed at a company. So depending on how your ESPP is structured and the specific trading rules that apply to you, you may receive your stock during what's called a blackout period in which you can't trade it. So that can happen around earnings reports or at the end of a quarter, for instance. And if something happens

that would make you want to sell any other stock in any company you don't work for, you might be uniquely limited in what you can do during these very sensitive times. Right. Andy, it occurs to me that one potential opportunity to mitigate overexposure in a company through being enrolled in ESPP program is by taking the money that you would get from selling that stock and then pretty quickly reinvesting that into something like a mutual fund or a robo advisor account, something else where you can take this money that you already had essentially allocated toward investments and putting it into something else that's not the company that you work for. Right. It's worth thinking about the fact that concentration is risky because if your stock goes down, a lot of your portfolio goes down.

It also has the potential for rewards, right? If a company does really well and you're invested heavily in that company, you'll net more of those gains than you would if you were invested just a little bit in that company and then in a bunch of other companies that didn't do as well. So again, it's not necessarily always the most prudent thing to put all your eggs in one basket. That's why they have that idiom. But on the other hand, right, it depends how you've set up your portfolio. And if you have room, you know, to take a chance on the company you work for, that's what you'd be doing. Right. Okay. Well, now let's get to the meat of James's question. On the spectrum of investing priorities, which is, of course, very individual and subjective,

where might ESPPs fall compared with retirement investing accounts like a Roth IRA or even a 401k? Well, let's just define this for people. So if you're using a typical 401k or a fund within a retirement account, there's lots of options that you have that are basically funds that are set up specifically to provide you with the income you'll need once you stop working, presuming you fund it correctly, right? So remember that your company may also be giving you free money in other ways for you to invest, right? So when your company gives you a match for your 401k contributions, you're getting basically free money that's going into investments that are going to hopefully help you down the road.

So if you're trying to think about whether to put money into one or the other, you have to think about how you're set up with retirement, how healthy your savings are. Do you have money that might be better spent shutting off some short-term debt that you have? Because those are going to help you determine whether you can really afford another investing product. I guess the way I think about it is it doesn't replace any of these things. You need to still have a healthy portfolio and follow the normal principles you'd follow and then decide, can I add something? Yeah, I imagine that a lot of financial advisors would maybe recommend investing more into the 401k to at least get the match from your employer if there is one, and then potentially a Roth IRA because accounts like

this are tax advantaged and designed to encourage you to invest in them for your retirement where ESPPs like you laid out before have some potentially complicated tax consequences. Right. I mean, it sounds like the listener is already contributing to their retirement account and is weighing whether to get into an ESPP. If you're not sure if you want to work with an ESPP, you're not sure how it's going to feel to have that kind of concentrated investment, you don't have to invest a lot, right? If you're interested and not convinced, you can start with a small amount and see how it affects your cash flow. I mean, you got paycheck deductions and suddenly, you know, whatever, that cable bill became a problem,

right? And you can decide, does this work for me? And if you do think that it does, then you can increase it. But it really depends on your company, your portfolio, and the specifics of your ESPP, because there's a number of ways that these can be set up. And I just think that whatever the listener is thinking about is really going to have to be considered in his own individual circumstances. Okay, that makes sense. Andy, thanks so much for sharing your insights. Do you have any final thoughts for our listener or anyone else considering an ESPP?

I've always got thoughts, Sean. So I guess what I would say is, this is just another calculation of risk and reward, right? The risk being, is your company going to do well? Are you going to have to hold stock you don't want to hold because you bought it just for the discount? The potential rewards are your company's stock goes up or you get to cash out that discount depending on whether you want to hold it or not. So it's just another way of slicing and dicing risk and reward in your portfolio. Just really think about what your specific needs are going to be. All right. Well said. Thank you again for talking with me. All right. Thanks, John. That is all we have for this episode. Do you have a money question of your own?

Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. This episode was produced by Liz Weston and myself with help from Tess Vigeland and Megan Coyle. Chris Davis helped with fact checking. Kevin Tidmarsh mixed our audio.

And a big thank you to the folks on the NerdWallet copy desk for all their help. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.