401(k) Strategy

A Basket of Equity-Savings

Are you over invested in your company’s retirement plan?

by Brian M. Rys, AIF, CFP, CLU, ChFC

Mr. Rys is a financial advisor with Boston Partners Financial Group, LLC. He can be reached at 508-520-2598 or brys@bostonpartnersllc.com.

Financial advisors tell their clients to save as often and as much as possible for their future retirement needs. Taking charge of your finances early allows you to make thoughtful decisions about your future and your long-term security.

One of the first options many investors will utilize is making contributions to their employer-sponsored retirement plan, such as a 401(k). Since your employment income is dependent on the company, having too much of your savings in company stock inside or outside your 401(k) may cause you to be too concentrated in one place.

From a diversification standpoint, you would not want “all your eggs in one basket.”  There are many historical case studies and examples to prove this point.

The value of employer matches

Here is how it works. A 401(k) allows you to make automatic contributions from your payroll, essentially paying yourself first. In addition to potential company matches on your contributions, some employers may also allow you to acquire company stock through your 401(k) contributions.

In some cases, the company’s match on your 401(k) contributions may be in the form of company stock.  In these types of scenarios, as your contributions and the matching funds from your employer accumulates, without knowing it, one could have a significant percentage of their total 401(k) allocation in company stock. Having equity in company stock can be a great thing as it can be a way to share in the profits of your company. But, having too much of your savings invested in company stock can be risky, and these risks are not always explained clearly.

as your contributions and the matching funds from your employer accumulates, without knowing it, one could have a significant percentage of their total 401(k) allocation in company stock

A good rule of thumb is to start with 5% of your savings in company stock and let it accumulate up to 10% before a rebalance is made.  Normal rebalancing has been shown to be an effective investing technique and can be easily set up automatically with most 401(k) providers.

Employee Stock Purchases

In addition to a 401(k) match, some companies will also offer an Employee Stock Purchase Plan (ESPP).  This is when the company will allow employees to purchase shares of stock, on a pre- or after-tax basis, outside of the 401(k).  Many times, shares are allowed to be purchased at a discount to current stock price which could be very beneficial as this discount can represent an immediate return on contribution.

There are some very good reasons to acquire at least some company stock inside a retirement plan, but it is still up to the employee to do their research and gain unbiased feedback on the stock.

To learn more about how these plans are utilized, an investor should consult with a financial advisor who is familiar with the company you work for or the particular type of plan your employer has in place. Consulting with a financial advisor can help you assess your level of risk tolerance and investment goals and help you determine how much company stock you should own, if any. ◊



Registered Representative/Securities and Investment Advisory Services offered through Signator Investors, Inc., Member FINRA, SIPC, a Registered Investment Advisor. 138 River Road, Suite 310, Andover, MA 01810. Boston Partners Financial Group, LLC is independent of Signator Investors, Inc. and any affiliated companies. This information is provided as general guidance and is not provided as legal, tax or investment advice to the questioner’s situation. Individual situations vary. Please consult your tax, legal or financial advisor for more detailed information and advice. 103-20170504-369125