[VIDEO] Worried You Own Too Much of Your Company’s Stock?

Total compensation for many executives and senior level managers includes some form of equity ownership in the company. Whether the company is publicly traded or private, there are multiple ways to accumulate shares of company stock – sometimes with varying tax treatments. And over time, those shares can really add up.

It can often be tempting to accumulate as much stock in the company as possible – whether as a show of confidence in the future of the company, or as a means to accumulate wealth. However, it is important to set some parameters.

Consider diversifying among different industry sectors, not just those of the company to which you belong. When the ownership of stock in a single company or sector makes up the bulk of your portfolio, any bad news about one stock is likely to have an effect on your other holdings. Failure to diversify exposes the stockholder to the potential of a catastrophic financial loss should the company collapse, as was the experience of Lehman Brothers employees during the 2008 financial crisis.

One solution is to hold no more than a 20% of your overall investment portfolio in company stock, and then diversify by investing in companies and sectors outside of the one your company occupies. This way, you’ll still be able to benefit from any company success in the future, while protecting yourself against any unforeseen downside.

Want more on this topic? Read these:

How Much is Too Much When It Comes to Owning Stock in the Company You Work For?

Your Employer Just Granted You Stock Options. Now What?

Own Company Stock Inside Your 401(k)? Here’s Something to Be Aware Of

Time to Negotiate Your Next Pay Increase? Ask for Stock Instead of More Cash.

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The views expressed in this commentary are subject to change based on market and other conditions. This video may contain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Malcolm Ethridge, CFP® is the Managing Partner of Capital Area Planning Group based in Washington, DC. He is also the Managing Partner of Capital Area Tax Consultants. 

Malcolm’s areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits. 

 Disclosures:

The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.

Investments in securities and insurance products are:

NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE