If you work for a publicly owned company, it's likely that part of your benefits package includes retirement assistance in the form of company stock. While you shouldn't hesitate to take advantage of your employer's gift, you should understand the risks associated with it.
Investments should be a major part of your asset pool, but company stocks need to be used with caution. Are they any more risky than another company's stock? No, but if most of your retirement savings is tied up in company stock, those funds could be depleted if your company falls into trouble. On top of that, you may find yourself without a job. An unfortunate example of this situation is Enron's boom and bust. Sixteen months after its stock price peaked at $90 a share, employees were forced to deal with owning almost worthless stock.
When Enron collapsed, its employees held 62 percent of their assets in company stock. While you may trust your employer, or believe that it has a strong future, putting so much money in one stock just isn't wise investing. You should have a diverse portfolio made of stock from a varied array of companies.
There's nothing wrong with owning some company stock, especially if it has a proven track record of strong growth and you believe in its long-term future. If you work for employers like Google or Amazon, you may be kicking yourself that you didn't invest more in your employer. Remember, however, that severely damaging your retirement plans just to prove company loyalty is not worth it.
Just being an employee of a company doesn't shield you from risk. To keep your funds safe, use investment analysis software from SmartStops.
Categories: Risk Management, Trading & Portfolio Strategies