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The newsletter articles on this page provide valuable information on timely and interesting financial issues across a variety of subject areas, including retirement, investments, personal finance, annuities, insurance, taxes, college, and government benefits.


Company Stock and Your Portfolio: Keep Your Eye on Concentration Risk
Managing Debt While Saving for Retirement
Examining the Taxpaying Population: Where Do You Fit In?
Is the Social Security Administration still mailing Social Security Statements?
What are some tips for reviewing my Medicare coverage during Medicare Open Enrollment?


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Company Stock and Your Portfolio: Keep Your Eye on Concentration Risk

The opportunity to acquire company stock — inside or outside a workplace retirement plan — can be a lucrative employee benefit. But having too much of your retirement plan assets or net worth concentrated in your employer's stock could become a problem if the company or sector hits hard times and the stock price plummets.

Buying shares of any individual stock carries risks specific to that company or industry. A shift in market forces, regulation, technology, competition — even mismanagement, scandals, and other unexpected events — could damage the value of the business. Worst case, the stock price may never recover. Adding to this risk, employees who own shares of company stock depend on the same company for their income and benefits.

Time for a concentration checkup?

The possibility of heavy losses from having a large portion of portfolio holdings in one investment, asset class, or market segment is known as concentration risk. With company stock, this risk can build up gradually.

An employee's compensation could include stock options or bonuses paid in company stock. Shares may be offered at a small discount through an employee stock purchase plan, where they are typically purchased through payroll deductions and held in a taxable account. Company stock might also be one of the investment options in the employer's tax-deferred 401(k) plan, and some employers may match contributions with company stock instead of cash.

Investors who build large positions in company stock may not be paying attention to the concentration level in their portfolios, or they could simply be ignoring the risk, possibly because they are overly optimistic about their employer's future. Retirement plan participants might choose familiar company stock over more diversified funds because they believe they know more about their employer than about the other investment options.

What can you do to help manage concentration risk?

Look closely at your holdings. What percentage of your total assets does company stock represent? There are no set guidelines, but holding more than 10% to 15% of your assets in company stock could upend your retirement plan and your overall financial picture if the stock suddenly declines in value.

If you work for a big company, you may also own shares of diversified mutual funds or exchange-traded funds that hold large positions in your employer's stock or the stock of companies in the same industry.

Formulate a plan for diversifying your assets. This may involve liquidating company shares systematically or possibly right after they become vested. However, it's important to consider the rules, restrictions, and timeframes for liquidating company stock, as well as any possible tax consequences.

For example, special net unrealized appreciation (NUA) rules may apply if you sell appreciated company stock in a taxable account, but not if you sell stock inside your 401(k) account and reinvest in other plan options, or if you roll the stock over to an IRA. You could miss out on potential tax savings, because future distributions would generally be taxed at higher ordinary income tax rates.

An appropriate allocation of company stock will largely depend on your goals, risk tolerance, and time horizon — factors you may want to review with a financial professional. It may also be helpful to seek an impartial assessment of your company's potential as you weigh additional stock purchases and make decisions about keeping or selling shares you already own.

All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.

 
©2017 Broadridge Investor Communication Solutions, Inc. All rights reserved.


 
 
 
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All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.

Securities and investment advisory services offered through NATIONAL PLANNING CORPORATION (NPC), NPC of America in FL & NY, Member FINRA/SIPC and a Registered Investment Adviser. Registered Representatives of NPC may transact securities business in a particular state only if first registered, excluded or exempted from Broker-Dealer, agent or Investment Adviser Representative requirements. In addition, follow-up conversations or meetings with individuals in a particular state that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with state Broker-Dealer, agent or Investment Adviser Representative registration requirements, or an applicable exemption or exclusion. Queen Financial Services Corporation, David Queen, CPA, Bickham Bookkeeping & Payroll and NPC are separate and unrelated companies.

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