August 26, 2008

Company Stock in a 401k

Smart Money magazine has an article this month about employee investments in company stock within a 401k plan.

The article cites that although the numbers have improved, employees on average are still investing way too much in their own company's stock. Although no specific numbers on individual investment percentages were given, the article states that 10% of companies still match 401k contributions with their own stock.

With all the lessons in the past (think Enron, Worldcom, etc.) and some recent examples (Bear Sterns, Lehman) I am not sure why some employees continue to invest heavily in their own company stock. The article states that no more then 5% of the total balance should be invested in the companies stock. I agree with this number.

If you work at one of the 10% of companies who matches with company stock, my advice would be to sell the match as soon as possible and reinvest in a more diversified portfolio. Some plans may let you sell immediately while others may have time restrictions. If there are time restrictions, periodically remember to go into the account and sell the stock.

On a personal note, I currently have <1% class="blsp-spelling-error" id="SPELLING_ERROR_2">MMPF's accounts combined) in my companies stock. Although the Company is strong and continues to release solid numbers, I do not want a significant exposure of one stock in my retirement plans.