It seems that the recent failure of Enron and other corporations
did not teach workers the primary rule of investing: diversify your
investments.
It seems that the recent failure of Enron and other corporations did not teach workers the primary rule of investing: diversify your investments.
A recent study revealed that workers still hold too much of their company’s stock in their retirement accounts. As a general rule, you should avoid being too heavily invested in any one company’s stock. When that company is also your employer, your risk of loss increases. A downturn for your company will not only diminish your portfolio, it could adversely affect your next raise or bonus. It might even cost you your job. You may believe the additional risk is okay, because you know your company and its industry. Or you think you’ll see problems coming before it’s too late. Unfortunately, there’s no guarantee that you will detect problems sooner than anyone else. Your company may provide incentives for you to acquire its stock, such as purchases discounts, matching or stock options. You may feel these incentives are too good to pass up, but keep them in perspective. For example, even a hefty stock discount can quickly disappear in a market downturn, and a discount or other incentive may not be worth the risk of overweighting your portfolio with company stock.
If more than 10% of your total investment portfolio is in your company’s stock, you may want to reduce your holdings or take other measures to diversify. Don’t risk your financial future by putting too many of your “eggs” in your company’s “basket.” Call us if we can be of assistance.
