Owning Your Company Stock: Dangerous Risk or Downright Brilliant?

We understand why many people invest so much into company stock… it’s your “team”,  your company.   In the words of Winston Churchill, sometimes it’s the root of your “blood, sweat, and tears”.    You invest the bulk of your valuable time and energy into your company all year long, year in and year out.   In addition to all of that, should you buy more of your company stock?  The short answer is… probably not.  You may be blessed work for a solid company with ambitious, smart people creating tremendous growth.   The problem is you ALREADY have a substantial amount invested in your company…. simply because you work there.    By owning more than 5% of company stock, you are inviting serious risk you don’t need to take…very dangerous.   It goes against the entire philosophy of diversification.   It’s a decision based on emotion, rather than prudent planning.

According to CNBC “401 (k)s hold risky levels of company stock” article on 2/21/13, some companies have very high level of company stock in their 401k plans.  Publix 70%, Sherwin-Williams 70%, nineteen companies like Colgate, Exxon, Dillard’s, Chevron, McDonald’s and Lowe’s have more than 50% of their 401k investments in company stock.  We feel that this is simply too much risk.”

For the purpose of example, lets look at Xerox stock, GE stock and Philips stock.   If you had invested $100k,  5 years ago, in GE, Philips, S&P 500 and DFA core 2 mutual fund… you would have the following today:

• – Xerox    =   $61k    Down  $39k
• – GE    =   $65k        Down  $35k
• – Philips    =   $71k   Down  $29k
• – S&P 500   = $113k     UP     $13k
• – DFA core 2  = $121k    UP   $21k

A solid retirement will not happen by accident, it is a matter of conscious choice, strategy, coaching and discipline.

Key actions:

1. If you feel like you need to own your company stock, keep it under 5% of your total portfolio.
2. Focus on asset allocation for your portfolio and follow the academic approach to investing.  Download our Q1 2013 market review to see the asset classes you are missing.
3. Many companies today have a less than optimal 401k plan.  Check to see if you can do an “in-plan withdrawal” to another qualified plan like an IRA.  I have verified you can do this at both GE and Philips.
4. We specialize in building portfolios with a tilt toward Value companies and Small Cap companies on a global basis.  We use a company called DFA (Dimensional funds) that allows us to have better structure to our portfolios.  See press release.
5. Get a free 2nd opinion from a Fee-only Advisor to see if you are on track.  Most people need a coach to keep them on track and help build an optimal portfolio for their risk tolerance.

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Blog Schedule:

• Next blog post – “So you want to be a Millionaire!  Are you on track.”
• Next Next blog post – “Invest Like Buffet”

About Integrity Investment Advisors:

At IntegrityIA, we believe most people are busy, over scheduled, and overworked.  We realize your time is dominated by the “crisis of the moment” and your task list is overflowing.  You work hard for your money, and you want your money to work hard for you.   We want that for you too. Integrity Investment Advisors, LLC is a fee-only Registered Investment Advisory Firm.  We are headquartered in Colorado and serve clients on a national basis.   If you know anyone who may benefit from our services, please contact us.  2013 Press Release: Integrity Investment Advisors, LLC and Managing Partner Todd Moerman are pleased to have recently joined an exclusive group of wealth managers offering the low cost mutual funds of Dimensional Fund Advisors (DFA) to its clients.