Jim'sMoneyBlog

Financial Opinion and Insights

Is All Your Money in Company Stock?

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

If all your money is in your company’s stock, you’re committing a major – make that MAJOR – ‘no-no’.  And, common sense should tell you it’s true, no matter how great you think your company’s stock is – and no matter how much you believe you know something others don’t because you work there.

Remember when General Electric (GE) was regarded as ‘blue chip’ and a ‘safe’ stock investment?  How about the people who worked for Lucent Technologies in senior management who still suffered huge losses when that stock went south.

“But Jim”, the argument goes, “my company will think I’m disloyal if I sell any of my stock!” 

Really?  Ask them to put that in writing.  Ask them to recommend – in writing – that having the majority of your money in company stock is your best financial option.  

  • If they don’t do it, it’s because they know that making this type of recommendation places them in the position of acting as a fiduciary.  That’s a legal status which means they MUST put your interests ahead of the company’s and this advice just doesn’t fit the bill.  In addition, it constitutes providing investment advice, which automatically classifies the individual giving it as a fiduciary.[1] 
  • If they DO put it in writing, the person who signed it should probably be dismissed for accepting fiduciary status which subjects both the signer and the plan sponsor – your company – to liability under the Employment Retirement Investment & Securities Act (ERISA).  A person’s fiduciary status is determined by actions, not title.  A person becomes a fiduciary by their actions even if they acted without proper authority.   In other words, if a company representative – even a clerk in the H.R. department – gives you investment advice regarding company stock, that individual has acted as, and has become, a fiduciary under ERISA.[2]

Best practice:  Remember your first loyalty should be to your spouse and your children.   If you didn’t work for your company but some other highly-regarded one, say Coca-Cola for example, would you have ALL your money in that stock?   If the answer is yes, then why don’t you do it now?  If the answer is ‘no’, then it should tell you something about your own situation.

If you have a huge portion of your assets in your company’s stock, the chances are excellent you do not have a professionally-prepared financial plan for your future.  By `professionally prepared’, I mean a plan hammered-out between you and an advisor that is not only qualified, but will accept fiduciary status for the plan and the investments chosen.  That will separate the planners and advisors from the salespeople for you.

If you’d like to learn more, you can request a copy of my paper, Why Investors Fail by simply using the `Request Info’ button on our website.  You can also learn more by subscribing to this blog on the right side of this page.

Jim

The Independent Financial Group is a fee-only registered investment advisor and does not sell products earn commissions, or accept any third-party compensation or incentives of any description.  IFG also does not provide tax or legal advice.  The reader should seek competent counsel to address those issues.  This post represents the author’s opinion and should not be regarde as investment advice which is provided only to IFG clients.  You can reach Jim at 805.265.5416 or through his website, http://www.indfin.com


[1] Retirement Success, 2nd edition, Dr. Gregory W. Kasten, United Trust, 2005, p296

[2] Ibid.