Virtual Accounting Blog

Too Much Company Stock Can Be Risky

Published by Jake Grimm on 11 Oct 2017

When is the last time you reviewed your retirement plan? Are all of your stock and bonds choices still working well? How much employer stock do you own? Is it time to think about switching a few things around? 

A lot of employees tend invest heavily in the company stock. They feel they know the company and are confident everything will work out well. However, don’t overlook the fact that there is a lot of risk when you invest too much in only one company’s stock. Here are some examples of the risks you may face. risk or reward animation.gif

* You minimize your diversification when you invest too heavily in the company stocks, increasing the risk of exposing your entire portfolio. This is called the safe haven effect. 

* No company is immune from economic downturns. When company’s performance is down, there’s a chance you could lose your job. If the company stocks are also down, it will also have a negative effect on your retirement portfolio. This is called a one-two punch. 

* There are some companies that do not permit employees to convert their “matched contributions” into other investments for a certain number of years. This is called a lock up period. In which case, you will have to use your own contributions to diversify your investments. 

* There is also the “forget risk”. As you near retirement you may forget about the risks involved when you have a large amount of company stock. The reorganization of the company stocks may be more important now because of your growing contributions and higher benefit matches. 

Everyone wants to retire as comfortable as possible. Therefore, it’s important that you create a portfolio that is well balanced to suit your age and risk tolerance. At Summit CPA offer multiple resources to assist you with your financial needs. Contact our office at (866) 497-9761 to schedule an appointment with our advisors.

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