Why Investing In Your Company’s Stock With Your 401(k) Can Be Dangerous

In a recent news report by the Washington Post, it was reported that the average 401(k) account has 42% invested in their own company's stock; while three out of four employees have more than 50% of their 401(k) invested in their employers stock. These statistics are amazing when you consider the Enron scandal that happened just a few years ago when Enron employees watched helplessly as their shares took unrecoverable losses. You would think Americans would have learned a lesson from this tragedy; apparently not.

Many public traded companies offer their own stock as an option choice in their 401(k) plan. To entice employees to participate in becoming share holders, some even offer stock price discounts or employer matching on company stock purchases. The general consensus among financial advisors is that investors should treat investing in their employer's stock like any other investment. Thorough research should be done before investing your retirement dollars in your company's plan. If your company offers discount purchases or matching contributions, this should be an included factor of your evaluation.

Once an individual has decided to add some of their company's stock to their portfolio, it is recommended that they have no more than 10% - 15% of their portfolio held in their company's stock. Financial Wealth Strategist, Tony Bass, warns employees not to invest too heavily into their company's stock. "Lessons learned from the Enron and WorldCom scandal should have taught employees that investing in their company's stock can be dangerous. If your company goes out of business, it would be awful for you to lose both your job and your retirement savings".

What causes so many employees to disproportionately invest their retirement savings into their employer's stock?

Experts agree that the root cause to employees having so much of their portfolio invested in their company's stock stem from several reasons including:

1. Thinking they have inside knowledge and understanding about their company's stock value
Many employees believe because they work for a company they have an advantage over other investors. Because they are aware of upcoming projects or new product role outs, they deem this as the type of information that gives them the edge and qualification to confidently invest a large percentage of their retirement savings into their company's stock.

Stock experts will tell you that a company's stock price is affected by many more factors than upcoming projects or new product releases. Other things that affect a stock's price are interest rates, company financials, company news reports, industry trends, as well as the status of the overall economy.

2. Employee loyalty and faith in their company
Many employees believe that investing the bulk of their retirement into their employee's stock is viewed as an act of loyalty. This view point is not only ridiculous, but it could potentially cost you your life savings if your company goes belly up. In fact, your company is not paying attention to how you are investing for your retirement. Even CEO's diversify their holdings into other stocks and investment choices.

3. Company match or stock discount incentives
Purchasing company discounted stock or receiving company matches is an excellent investment opportunity. If your research shows that your company's stock is a good stock to invest in, the employee incentives should make this a no-brainer investment. Maximizing your company's matching program can be a smart move in this example.

Treat your company's stock like any other investment choice. Research and analyze the stock. If your company offers discounts or matching incentives, add those factors into your research analysis. However, make sure that your retirement portfolio is no more than 10% - 15% invested in your company's stock.

This article has been provided to you by Tony Bass, President and Financial Wealth Strategist of Bass Financial Solutions, Inc. If you would like to receive "Learning the Secrets to Maximizing Your 401(k) Rollover and How You Can receive 13.68% Guaranteed" please visit http://www.rollovermoney.info

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