NASD today issued an Investor Alert warning workers against concentrating too much company stock in their 401(k) plans and stressing the importance of diversifying retirement investment accounts.
The Alert, Putting Too Much Stock In Your Company -- A 401(k) Problem, identifies the problems with owning too much company stock and explains how investors can balance their 401(k) portfolios.
"For some people, a 401(k) plan is their only form of retirement savings," said John Gannon, NASD Vice President for Investor Education. "And they shouldn't gamble their financial security in retirement on the success of just one stock."
A study by the Employee Benefits Research Institute (EBRI) and the Investment Company Institute (ICI) found a large percentage of employees direct more than 25 percent of their 401(k) contributions to company stock. In the case of employees over the age of 60, almost 25 percent held more than half their 401(k) savings in their employer's stock, while 16 percent of employees over 60 held more than 80 percent of their 401(k) savings in company stock.
"Owning company stock can allow employees to share in the financial success of the company but too many employees, especially those close to retirement, are exposing themselves to significant risk when they put all their eggs in one basket," Gannon said.
Most financial experts agree that an adequately diversified portfolio can have between 10-20 percent of assets in company stock and the remaining principal spread among different markets, sectors, industries, and securities.
Additional information about saving for retirement is available on the Web in the NASD's Smart 401(k) Investing learning center. Smart 401(k) Investing guides investors through the process of enrolling and managing a 401(k) account and answers questions about everything from 401(k) investment options to asset allocation and diversification, from moving a 401(k) when changing jobs to handling withdrawals after retirement.