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April, 2010
Company Stock in Your Retirement Account

The collapse of Lehman Brothers and several other major financial institutions in 2008 should have served as a wake-up call to the millions of American workers who have access to company stock as an investment within their employer-sponsored retirement plan.

Owning company stock within your retirement portfolio is not necessarily a bad thing. The issue, however, is that for some investors, company stock may represent too large a percentage of their retirement plan assets. Here are some tips to help you determine if your portfolio is too heavily weighted with your employer's stock.

  1. Know your plan. Does your employer make matching contributions in the form of company stock? Are there rules governing management of the stock within your account? You can request a Summary Plan Description, which details the rules. Ask your employer to explain any rules you don't understand.

  2. Consider how much company stock you own. What percentage of your total assets does it represent? There are no fixed guidelines, but some experts recommend a maximum of 10% to 15%. Owning more could expose you to financial risk if the stock suddenly declined in value. The ideal allocation for you will depend on your goals, risk tolerance, and time horizon, factors you may want to review with a financial professional.

  3. Review your overall investment strategy. Sometimes employees cannot fully control the allocation of company stock within their account. Some employers require matching contributions to be invested in company stock or they may limit employees' ability to sell the stock prior to a certain age. If you determine that company stock represents too much of your portfolio, there are things you can do to manage the risk. You may want to consider allocating a portion of your assets to different types of investments. If your employer is a retail company, for example, you may be able to diversify and consider other types of stocks.

  4. Capitalize on other retirement vehicles. Do you maintain an individual retirement account (IRA)? Does your spouse have a retirement plan at his or her place of employment? If you cannot control the level of diversification within your employer-sponsored retirement plan, you may be able to enhance diversification elsewhere.

Even critics of current plan rules have pointed out that a matching contribution of company stock is better than no matching contribution at all. When evaluating your holdings in company stock, be sure to take an opportunity to conduct a comprehensive review of your plan assets, your investment strategy, and your investments outside of your plan.


©2009 Standard & Poor's Financial Communications. All rights reserved.

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Kelly C. Ruggles is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles is the author of "The Financial Playbook" for Retirement

Kelly C. Ruggles does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.