Don’t invest in your company stock

By Scot Herrick | Personal Finance

Nov 07

Do you remember Enron?

While many will remember the fraud that was done in the energy markets, I remember the thousands and thousands of employees who lost everything in their 401(k)’s because they had invested all of it in Enron stock. In a period of just months, they lost everything they had saved.

I thought we had learned the lesson to not keep more than 5% of your stock in your own company. And, while I had written about this earlier, I have since had conversations with people in the know about employees at some of these failed financial institutions. The one overriding theme? They had lost everything in their retirement accounts because they invested 100% of their 401(k) investments in their company stock.

I had thought that investing in your own company stock was more the exception than the rule. Apparently, that is not the case.

It’s no fun to lose 40% in the stock market in just months from this financial crisis. But that is way better than losing everything you have saved by investing in the company you work for.

Think of it this way: you are already 100% invested in your company through your job. From the time you spend, the skills you bring and the effort you bring, you are more than invested in your company’s success. Why would you then double-down on this investment by taking the earnings from your job and investing them even more in your company?

In a world where pensions are gone or going, your savings are what will give you the retirement you deserve. To save and save and save to only lose it all in a company that goes bankrupt makes no sense.

Does your company force their match with company stock? How often do you look at your 401(k)?

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About the Author

Scot Herrick is the author of “I’ve Landed My Dream Job–Now What???” and owner of Cube Rules, LLC. Scot has a long history of management and individual contribution in multiple Fortune 100 corporations.