Recently, I suggested that putting all, or even many, of your 401(k) eggs in the your-own-company-stock basket — as an alarming number of participants seem to do — is dumb. (Would you advise a friend to put his or her entire retirement nest egg in your company’s stock? Then why do it yourself?) According to a survey cited by The Wall Street Journal, that’s where 42% of all 401(k) assets sit.

“Regarding your comments on 401(k) allocations,” writes Dennis Faucher of Hewlett-Packard, “did you consider that the percentage in company stock could be high because of aggressive company matching or discounts on stock purchase? This is no excuse for not being diversified, but may be one of the reasons that the percentage is so high.”

Well, no, I hadn’t considered this. See how self-employment can limit one’s experience? Dennis and others of you who were kind enough to point this out are certainly right: this twist must certainly skew the percentages somewhat.

As John McInnis explained: “Your column on 401(k)’s is right on the money — people do have too much invested in their company stock. But you and The Wall Street Journal missed an important point. Sometimes we have no choice. Take my own 401(k) as an example. I invest my contributions 100% in an equity fund. Yet when I got my latest statement, I found that roughly one-third of my retirement stash is invested in company stock. How can this be? Simple. My company (Sanders, a unit of Lockheed Martin) matches contributions 60% on the dollar to the first 8% of salary. A great deal! But there is one catch. The match is made entirely in company stock. We have no choice in this, nor can we reallocate it later on. This, coupled with the fact that the stock has done quite well lately, means that I (and probably most other employees here) are overweighted in company stock. Short of leaving the company, I can see no way out of this situation. I suspect that a lot of other big company 401(k) plans are similarly run.”

Tomorrow:v A 401(k) Rollover Question


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