Employer stock
Posted By admin on October 5, 2009
Employer stock is about loyalty, not investment return. Many 401(k) plans match contributions from employees with shares of employer stock. About a third of all 401(k) assets are company stock. Stock option plans allow employees to buy shares of employer stock at a discount. Stock ownership plans are funded entirely with employer stock. Tax benefits in these plans encourage the purchase of employer stock. Employees are also encouraged to buy employer stock outright. Advancement in the corporate structure requires playing by the rules.
Many employees also believe that they understand the company better than outsiders do. This often turns out to be pure overconfidence. Few employees know anything about stock analysis and evaluation. Their inside view often blinds them to competitive threats and negative market conditions. As a result, employees frequently have half or more of their investment assets in employer stock.
For employees who value loyalty more than investment return, this is fine. For other employees, this is a disaster. Individual stocks are highly volatile. You will need to adjust to wild swings in the value of your shares. If your retirement depends on the value of your company stock, you may be forced to retire later or not at all. Solid companies can quickly turn into a mess. Corporate troubles are usually accompanied by large layoffs. You may lose your job at the same time the stock collapses. Most employees will be happier selling company stock down to 5 percent or less of your portfolio. Sometimes in life, we have to choose between guilt and selfabuse.
For most employees, guilt is the better choice.
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