Just because there is a company match doesn't make it the match you should take.
We know about diversity. We know about spreading the risk. We know that we are supposed to be investors, eyeballing retirement. We should know better. Why then, do we continue to take the offering of the company's stock in our 401(k)?
There are several reasons. First of which is how your company’s 401(k) plan in structured. When an employee becomes eligible to begin investing in the plan, they often find that the company match, the funds the company invests with you, up to a certain percentage, is often only offered in the company’s stock. And because we are always suggesting that the employee take the company match, at the very least, they take our advice and begin to load up their portfolio with shares of their employer.
Often, when this sort of offering is available, it is one of the few buy-and-hold restrictions in the plan. That means that if the fortunes of your company drop, for whatever reason – poor quarterly earnings, lackluster forecasts or simply a cyclical turn of events, the employee must ride out the downturn. This can be a big deal if the employee is long-term and because of that, has a huge chunk of their retirement tied up in that stock.
More on owning stock in your company.
Paul Petillo is the Managing Editor of Target2025.com