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I love my company, but I want to diversify my 401(k). How much of my retirement savings should I keep in my company stock?


As little as possible. Here’s why: You acknowledge the value of diversifying your retirement portfolio – owning a mix of domestic and foreign stocks and bonds, plus a smattering of other assets, such as commodities and real estate. If something goes wrong with one holding or even a whole sector of the stock or bond market, the impact is likely to be blunted because it only accounts for a small portion of your assets and also because other holdings are likely to be rising in value at the same time.

If that one holding that goes bad is your employer’s stock, however, you stand a fair chance of being a big-time, two-time loser. If your company’s fortunes head south in a significant way, not only could you lose a lot of money on the stock. You could lose your job, too. As it is, if your company makes a matching contribution to your 401(k) – maybe that’s why you love it so much – it’s probably in shares of its stock, so you would already have a stake in it that goes beyond its proportion of the overall market. That’s plenty. You should allocate your own contributions among the various fund choices that your plan offers.

-Conrad de Aenlle