Invest in Your Companies Stock Carefully
The fall of stocks such as Bear Stearns and Fannie/Freddie, have taught us not to overlook one of the most common elements of sound investing—diversification. Unlike traditional pensions and 401(k) match programs, some publicly traded companies will offer shares to employees as part of their retirement plan. Participating in such a program has many benefits, but if set on autopilot can set you up for failure.
A common plan like mentioned above, will offer a match into a retirement account not with cash, but directly with shares of the company. Just like normal match retirement plans, you can’t afford not to take part. The problem with company share plans is that if left untouched can expose you too heavily on one company. As we have learned with such powerhouse stocks like Bear Stearns and Fannie/Freddie, no company is too big to fail. So be carefully not to overload with your own company’s shares.
One option that is worth considering if your company offers shares is to make a habit, perhaps yearly, of reallocating your portfolio. Just because your company only offers shares as opposed to money doesn’t mean you can’t diversify, simply sell your shares and use the proceeds to purchase different investments. Usually such actions won’t trigger any fees or penalties and can easily be done over the internet. We already rely on our jobs for money today; let’s not rely on their future hopeful success to determine our future retirements. $
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Comments
I would agree that around 5% is about right if not a little much. I try not to have my portfolio hold more than 10% of single stocks.
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This happens every few years, remember all the Enron employees who lost their life savings because they invested it all in Enron stock? People have to be told to diversify over and over.
I agree 100%. Regardless of who your company is (Microsoft Employees) or how strong your company’s growth has been, it’s risky to have too much of your own company’s stock. Like you mention, you already work for them…don’t have a large percentge of your portfolio in them.
So, if we can all agree that diversification is a good idea, then how much *should* you be invested in your own company’s stock? 1%? 5%? 10%?
Right now I’m at around 5%. I feel like that’s getting high and will likely sell some shares to pay off some debt. Thus improving my cash flow and diversification at the same time.