Course 207: Investing in Your Company's Stock
When Loyalty Goes Too Far
In this course
1 Introduction
2 When Loyalty Goes Too Far
3 How Much Do You Own?
4 How Much Is Too Much?
5 What If I Have Too Much?

Owning a stake in your company is a great idea--when your company is doing well. In fact, if you acquire stock when your company is still small, the returns can be astronomical. Also, instead of just being an employee, you're an owner, too. You have a personal stake in the company's growth and success.

But don't bet on becoming a millionaire with your company's stock. Bubbles burst. Just look at what happened to so many dot-com companies in 2000. Start-up companies with no profits aren't the only ones that are vulnerable. In the last 20 years, history has provided plenty of examples:

Take IBM IBM after the stock-market crash in 1987. Employees saw the value of their shares drop by two thirds. A lot of dreams--like sending children to college and retiring early--went up in smoke. Then there was Microsoft MSFT in 2000. The stock dropped from about $120 to under $50 at one point. Employees who failed to diversify their Microsoft-laden portfolios were wishing they had.

Finally, there's the story of the former employees of Color Tile. Not only did they lose their jobs when the company filed for bankruptcy in 1991, but because the company had funneled employees' retirement savings into Color Tile stock, a sizable portion of their retirement portfolios evaporated when their jobs disappeared.

As part of the 1997 Taxpayer Relief Act, employers can no longer direct more than 10% of their employees' retirement-plan contributions into company stock, as Color Tile did. But investors are still free to invest in the company stock without limit, and employers aren't restricted from matching employee contributions with company stock.

Simply put, overinvesting in your company's stock puts more of your financial eggs in one basket. Your employer's fortunes already dominate your present financial security. (Unless you're lucky enough to have a trust fund, it's pretty likely that you're relying almost exclusively on your employer for your current income.) Don't let them dominate your future goals, too.

Next: How Much Do You Own? >>

Print Lesson |Feedback | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.