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September 14, 2001/Elul 26, 5761, Vol. 54, No. 1
Company stock - good for a 401(k)?
LEE EISINBERG
Special to Jewish News
Show up to work on time. Go to the company picnic. Talk favorably about the company's products. But don't overweight your 401(k) with company stock.
Why not? After all, you may believe that your company's prospects are quite good - and you may have already benefited from a significant run-up in your employer's stock price.
Nonetheless, you need to think carefully about the percentage of company stock you put in your 401(k) plan. If it's too high, you could be taking more of a risk than you realize, because you may become overly dependent on the fortunes of just one company.
That's not to say you won't want any company stock in your 401(k) - especially since your employer may give you shares of stock as matching contributions. Beyond that amount, how much company stock should you choose to put in your 401(k)?
The answer depends, in part, on what your other options are. If you work for a large company, your 401(k) may offer you a dozen or so investment choices - growth funds, growth-and-income funds, international funds, income funds, bond funds and money market funds - in addition to company stock. But if you work for a small firm, your 401(k) may only give you a few choices, aside from company stock.
Clearly, you'd find it easier to truly diversify your 401(k) portfolio if you worked for the large company. If you worked for the smaller one, you'd just have to spread your investment dollars around as much as you could.
There are other factors involved in choosing how much company stock should go into your 401(k). If you work for a large, stable, "blue-chip" firm, then you may decide to devote a relatively higher percentage of your 401(k) dollars into your company stock.
Conversely, if you work for a young, start-up firm, you might want to include less company stock in your 401(k) - at least until your company compiles a proven track record of earnings in all economic climates.
The amount of company stock you hold in your 401(k) should also depend, in part, on where you're at in your career. The closer you are to retirement, the less you'll want to rely on the stock price of a single firm - particularly if you plan on tapping into your 401(k) soon after you retire.
Ultimately, you probably have room in your 401(k) for your company's stock. Just make sure it doesn't take up all the space.
Lee Eisinberg is a Investment Executive at Dain Rauscher in Phoenix. The opinions expressed are those of Eisinberg and do not necessarily reflect those of the firm. Dain Rauscher is a member of the NYSE and SIPC. Eisinberg can be reached at 602-508-7863 or toll free at 888-595-4166 for further information.
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