May 2003

What's New in Finances

Many workers still own too much company stock

5/1/2003 -

Despite recent corporate scandals, employees are showing a reluctance to cut back on the amount of company stock they own. If you own shares of your employer's stock in your retirement plan or investment portfolio, you need to review your position.

Why do some people buy a lot of their company's stock? Some do it to show loyalty; others, to buy the stock at a discount. Many employees buy company stock because their firm's 401(k) plan makes it easy. Often 401(k) contributions are matched with company stock — not cash. As a result, employee funds tend to flow toward company shares. Almost without knowing it, employees find themselves weighting their investments toward a single stock.

Linking your job and your investments with your employer leaves you vulnerable to your employer's financial ups and downs. Not only is your job dependent on your employer's doing well, your investment portfolio depends on it too. Investing heavily in a single stock — even your company's — carries much greater risk than building a diversified portfolio.