A Word from the Investment Department: Should I Own Company Stock?

Many companies as part of their retirement plan options allow for employees to buy company stock, whether through their 401(k) plan, and Employee Stock Options Plan (ESOP), stock options, Employee Stock Purchase Plan (ESPP), or through restricted stock units (RSUs). While this can be an attractive way to “invest in what you know” there are some issues that may arise depending on the level of concentration in one particular investment.

Your portfolio consists of two types of capital – Financial Capital and Human Capital. Financial Capital is investments such as stocks, bonds, ETFs, CDs, and cash. Human Capital is the income you earn over your lifetime. If your livelihood depends upon the health and growth of the company you work for you can think of that as having concentrated risk in one company. By over-investing in your company’s stock you may be taking on more risk than you planned for and lose control over the risk management of your portfolio.

The best (or worst) example of the risk of company stock is Enron. Many employees had a large portion of their net worth invested in Enron and consequently when the firm went bankrupt they lost not only their assets in the form of stock, but also their livelihood in the form of wages.

B&C Financial Advisors investment philosophy is one of diversification of assets and limiting risk. We do this in a rigorous time-tested fashion. However, if we are unaware of a client’s outside retirement or stock holdings then we are unable to provide accurate financial advice.

Please give us a call at (904) 273-9850 to discuss your current financial plan especially if you have an investment in your employer’s stock.