401K disaster

[Mister T]

Link

Its unfortunate that so many Enron employees bet their retirement on 1 stock.
According to Enron, they had 18 investment options.

DIVERSIFY.... such a commonsense and powerful idea

 

[burnedout]

DIVERSIFY.... such a commonsense and powerful idea

I strongly agree.

From what I can gather from an acquaintance, part of the reasoning behind investing so much in the company's stock has to do with loyalty and solidarity. Unfortunately, such reasoning holds the potential for disaster in the most awful way. Such as this case.

 

[RossMAN]

DIVERSIFY.... such a commonsense and powerful idea

I strongly agree.

I second that.

I have my 401k diversified into 3 different funds.

 

[Viper GTS]

DIVERSIFY.... such a commonsense and powerful idea

The problem is most middle class people don't think like that.

"The company is taking care of it, look how well it's doing!"
"It's too much hassle to sell the stock & diversify, I'll just hold onto it."
"I don't understand."

Etc, etc, etc.

Viper GTS

 

[vi edit]

I think my 401k is split into about 5 different things.

Bonds
Janus index fund
Small cap index
Mid cap Index
Large cap index

20% each way

I got the bonds to help boost the fund when the stock market is slumping.

 

[StageLeft]

Diversification is the first f**king lesson in investing. It sucks for these people but if you had $1,000,000 in your retirement and it was all invested in one stock and it's now worth $10,000 you'd a dumbass.

 

[Viper GTS]

Mine is currently 100% with an S&P 500 index fund until I decide how I want it split up.

Of course my balance is still sitting at $0.00 since I haven't had a payroll deduction for it yet...



Supposedly 2-3 pay periods & it should be in effect, right in time for the new year.

Viper GTS

 

[Mister T]

Vi_edit,

good mixup, you might want to get some international exposure in there ~ 10%

Viper,

SP500 is a good call... glad to see you starting early

<<Diversification is the first f**king lesson in investing. It sucks for these people but if you had $1,000,000 in your retirement and it was all invested in one stock and it's now worth $10,000 you'd a dumbass. >>


Yup.

 

[AmigaMan]

But also remember to diversify in different sectors. My old company's 401K list had a list of 15 or so funds, about half of which were heavy into tech stocks and were doing really well. Me, and a lot of the other techies there, put most of our contributions into the tech funds and little into others (which included the Vanguard 500 S&P Index and international funds). Then when the bottom fell out of the tech sector, our 401k's did the same.
Now that I've learned my lesson, I'm investing in my new company's 401k more wisely. This is a rudimentary breakdown of what I'm investing in:
10% Bio Tech/High tech
30% large cap value
10% small cap growth fund
30% Vanguard 500 S&P Index
15% company stock
5% in an international fund

 

[GSOYF]

Wow that sucks!!! I gotta say that I am a pretty stable individual, but if what happened to that poor bastard happened to me, somebody would have to die. I would get homicidle real quick.

 

[Stifko]

I heard about a couple who both work for Enron (or a subsidiary) and put everything into their Enron 401k. Their investments were matched by the company. They really got the shaft, but how many Americans don't even have 401ks?

 

[AaronP]

A lot of companies that do a company match, only match you with stock in the company. Any company that has a retirement plan that forces you to buy stock in that company is a cruddy company IMO.

Of course sometimes stock options pay off big time for employees, Amazon.com and Best Buy come to mind.

 

[Mister T]

Its common practice for companies to match contributions with company stock. However, blatantly choosing your contribution to go into the company's stock is not the brightest idea. My company, for example, matches with company stock.... however, if you are above the age of 40, you can take the match and reallocate to whatever investment you choose.

In general, holding a large stock position in the company you work for is not a very good idea. The reason is that you already bear some degree of employment risk by the virtue of being employed by the company. Loosing your job and the compnay stock going down is likely to be an event that is highly correlated. So, if you buy stock in the company you work for, you are in effect, doubling down.

Many executives compensated by company stock are aware of this problem and there are several I-banks that have private client wealth management group that specially deal with this type of issue. Derivatives, put options, equity swaps and forward contracts can mitigate a lot of the risk if used appropriately.

 

[Emos]

<< Diversification is the first f**king lesson in investing >>


Couldn't have said it better myself Skoorb! I have my 401k split up rather well IMO

Ameripath, Inc. Stock Fund 16.84
Fidelity Growth Opportunities 19.57
Guaranteed Income 3.02
Janus Worldwideaccount 24.70
Lazard International Equity 8.09
S&P 500 Index 27.78