Employer Stock - Risky?
Friday, December 1st, 2006
Employee stock programs or stock options are easier to invest in, and may seem to be quite lucrative, given the discounted price. Plus, you know all about the company; why not concentrate ALL your investment just in this one?
It’s risky, from three points of view :
- Quite often, employees are the last to find out any bad news; Enron was a classic example, as many employees found out.
- It needn’t be as bad as a collapse; but when business is down, if you’re on the chop list, you need your investments and savings to keep you afloat. If those are in the same boat ….
- Even if nothing untoward happens - you may still be missing out on possible opportunities elsewhere, by sticking to one stock.
The best investment strategies diversify risk; don’t put yourself in a position where your success hinges on one or just a very few options. Ideally, any single stock or investment option shouldn’t account for more than 5 - 10% of your portfolio’s value.
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