Issue Date: September 14, 2008
MoneySmart |
SHARON EPPERSON |
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Do you have too much company stock?
If your company fails, your nest egg could get fried.
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Your goal is to build a $1 million nest egg for retirement, but putting too many of your eggs in one basket could crater your account. A new Financial Engines study of nearly 1 million retirement portfolios shows more than a third of 401(k) participants -- and three in five people with $1 million-plus 401(k) balances -- have 20% or more of their portfolios in company stock. The older you are, the more likely that's your investment strategy.
That's not too smart, no matter if you have $1,000 or $1 million saved -- think Bear Stearns and Enron. If your employer implodes, your nest egg could get fried, and fast.
Limit company stock to no more than 10% of your retirement account balance. If your employer matches your 401(k) with company stock, sell shares when permitted to avoid becoming overweighted.
Put the rest of your portfolio in diversified mutual funds. Even if the investment choices in your 401(k) are limited, studies have shown that mutual funds are likely to produce better returns, adjusted for risk, over the long haul than a single stock.
Contribute as much as you can every year. This year, the maximum contribution is $15,500 or $20,500 if you're 50 or older. Remember, even if you're fortunate enough to amass a million bucks, that may have to last you 20 years or more in retirement.
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