You are completely invested in your company – which is both inspiring and terrifying.
Your emotions are invested right along with your time and energy. As a business executive, your wealth is invested, too, in the form of equity.
This all feels great while the company is growing. Your care and hard work quite literally pay off.
But do you ever wonder – even worry – what happens to your wealth if your company’s success took a turn for the worse? What will happen to you and your family?
There are many examples of seemingly healthy and strong companies that later collapse. When the failure occurs, it can be swift and there is rarely enough time to reduce your risk exposure.
To avoid this scenario, it’s important to diversify your wealth and reduce your dependence on your employer. A general guideline is to keep 10% or less of all assets in company stock. This becomes even more important as you near retirement. For those with a high tolerance for risk, no more than 20% of assets should be held in company stock.
Here are some key considerations for employees with company stock:
- Determine your total exposure to company stock, including stock options, restricted stock units, pension plans, employee-directed stock purchases, and company matches.
- Know the restrictions, if any, on buying and selling company stock. The more your portfolio is tied up in company stock with restrictions, the more risk you incur.
- Evaluate the level of risk your company’s stock carries. Employees whose company stock is subject to significant volatility should be particularly wary of investing too large a percentage of their investments in company stock.
- Read news stories and information from outside sources to evaluate the short and long-term prospects of your company’s stock performance. Don’t rely solely on information from your employer on the company’s performance and outlook.
- Maintain reasonable expectations of the performance of your company’s stock and be prepared for occasional downturns. It’s easier to see changes in market dynamics with hindsight than it is to predict in advance.
- Learn about the tax ramifications of selling company stock in each of the plans where it is held. A well-thought-out plan will weigh the optimal tax strategy against the investment risks.
In addition to diversifying your portfolio, investing outside of your business also helps generate wealth and provides liquidity. If there’s a down year in company profits, you still have cash to maintain and fund your lifestyle.
By following these tips and diversifying your wealth, you can reduce your dependence on your employer and protect your financial future.
© 2024 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.
