How much is too much in company stock?

[sisto]

I don't think this is a duplicate, but I believe there are several similar topics out there. Feel free to move it if necessary. I'm sure many of us engineer types on here work for Mega Corp and get stock incentives or have ESPPs. How much is too much to be invested in the company you work for? Should we be capping it at a % of net worth or perhaps just a total $ amount? In my case I have some in my 401K as well as ESPP and RSU and I started wondering if it's too much. I remember way back hearing something like don't invest more than 15% in company stock, but I'd love some advice from the experts here. I can provide more details about my situation if someone finds it to be more helpful, but I thought this would just be a good topic for others too and not just me. Thanks in advance!

[TheLazyMan]

I'd be very wary of having significant holdings in a company I worked for.  If the company hits a rough patch and you lose your job the stock price will likely decline at the same time.   I wouldn't keep more than 2-3% of your portfolio in your company stock.

[mizzourah2006]

I receive RSUs/RSRs every year as part of my compensation. As soon as they vest I sell them (because they are immediately taxed like cash) and move the money into my Roth IRA in a more diversified investment. I also get a 15% deduction on stock purchases up to 2k/yr, so I make those purchases and then typically sell once a year or so, when they stock is at a market high and move that over to a Roth IRA as well. I'm a big fan of the advice that says you don't want too much of your livelihood in 1 company. You already receive your paycheck from that company, why do you want to be heavily invested in them as well? I typically have no more than 2-3k of stock (aside from my unvested shares) in my company at any time.

[MDM]

How much is too much to be invested in the company you work for? Should we be capping it at a % of net worth or perhaps just a total $ amount?

It all depends on how well the company does compared with the market average.  Of course that isn't knowable in advance, so the risk added by placing both your income and investment eggs in the same basket is significant.

You can find a variety of rules of thumb on this topic (e.g., google "how much of my company's stock should I own").  We're aiming for <5%.

[Gone Fishing]

+1 for <5% if you can help it.  If you get a lot of stock options, do the best you can. 

Enron blew up when I was at an impressionable age.  Couldn't believe how many people had 100% of their 401(k)s in company stock when it happened.  That was one free lesson at other's expense that I would not forget.  I still come across co-workers from time to time with 100% of their 401(k) in the company.  I always try to redirect them!

[eccdogg]

For me approximately zero is the amount you should hold unless there are some sweeteners involved.

I used to get RSU's and I would sell them the day they vested, obviously while they were restricted I could not sell.

We do have quite a bit tied up in my wife's company however ~15% NW.  But this is because they have given a buy 2 get 1 share policy for partners (the company is closely held).

My thinking is simply this.  Really there is no reason to believe your own company is a better investment than all the other companies you could invest in (unless you are insider trading).  So why have any money tied up in an investment that is likely to do bad at the same time as you lose your job.

[Sibley]

I don't think I'd hold any significant amount in company stock. Maybe only during a waiting period before I could sell it?

I'm an accountant - Enron scarred my profession.

[sisto]

+1 for <5% if you can help it.  If you get a lot of stock options, do the best you can. 

Enron blew up when I was at an impressionable age.  Couldn't believe how many people had 100% of their 401(k)s in company stock when it happened.  That was one free lesson at other's expense that I would not forget.  I still come across co-workers from time to time with 100% of their 401(k) in the company.  I always try to redirect them!

I too remember this and I think that's when I remember hearing not more than 15%. I currently carry less that 15% of my NW in it, but I've been sitting on my ESPP and RSU shares for a while. When my RSUs vest the company automatically sells just enough shares to pay the tax and posts the rest of the shares in with the ESPP shares purchased. I used to use this to keep from having credit card debt and to pay for home improvement projects or vehicle purchases. I've always been pretty frugal, but now that I've found MMM I'm doing better and working harder on growing my NW. I had been planning to hold this stock there until I retire in the next 6-7 years and then use it for the gap before the ROTH ladder or to combine it with 72t. I've also kicked around using it to pay off my house to lower my required spending. Now I'm not so sure.

[CanuckExpat]

I hold as much in company stock as they make up as a percentage of the equity index funds I hold..

I maximize stock purchase plan to get the "free money" but the shares are set to automatically sell on the day I receive them.
RSU's are manually sold as they vest, since there is no automatic option for us.

Presuming you wouldn't go out and buy individual shares in your companies shares on the open market, why would you hold onto the proceeds of stock purchase plans and RSU grants any longer than you have to?

As always, when in doubt, consult your Investment Policy Statement

[NorCal]

I would hold no more or less than is required for advantaged investing.  If you can buy at a discount, buy a lot, but don't hold for longer than required.

I would sell RSU's as soon as you can, as long as there are no significant short-term capital gains (which shouldn't be frequent, if ever).

ESOP's get a little more complex, but there's less to worry about since you don't actually own anything.

I would never buy the shares outside of employer incentives.

[mm1970]

I don't think this is a duplicate, but I believe there are several similar topics out there. Feel free to move it if necessary. I'm sure many of us engineer types on here work for Mega Corp and get stock incentives or have ESPPs. How much is too much to be invested in the company you work for? Should we be capping it at a % of net worth or perhaps just a total $ amount? In my case I have some in my 401K as well as ESPP and RSU and I started wondering if it's too much. I remember way back hearing something like don't invest more than 15% in company stock, but I'd love some advice from the experts here. I can provide more details about my situation if someone finds it to be more helpful, but I thought this would just be a good topic for others too and not just me. Thanks in advance!

I always maxed out my ESPP when I worked for megacorp, and sold it immediately and moved into mutual funds as they matured.

[Lordy]

My diversification rule says to not put more than 5% into any asset.
If your paycheck is coming from that company I would even stay lower than that.

Just my €0.02

[amberfocus]

I'm currently struggling with this question too.

Right now, I own 7.4% of my investment portfolio as two company stocks, all acquired via 401(k) match. I'm holding onto them because they were "free", and my current employer's stock has actually been going gangbusters in recent years. But this is small fry compared to my unexercised stock options, which comprise a whopping 42% of my portfolio at current market value. This would make my hair stand on end if I actually sunk my own money in, but I haven't. I just try to manage my expectations and exuberance when I check my NW, because... yeah. A meteor can flatten my employer tomorrow.

It makes sense to ditch most (if not all) of one's company stock at FIRE, because the risk/volatility probably isn't worth it. But I'll admit to having a slight bit of fun when the stock price does soar. I'm just hoping that it can hold on until I'm ready to FIRE and cash out.

[forummm]

Only get as much as you can get for a serious discount. And then only hold it for as long as you have to in order to vest or meet the requirements. Then sell every share you can.

If the amount you can get is unlimited, then I would make some judgment call based on how good the discount was and how long I had to hold it.

[Davids]

The only reason anyone should own their employers stock is either if they offer an ESPP with a 15% discount or if your compensation package includes stock options or grants. Even with that i still advise to sell as soon as you legally can.

[surfhb]

You're already invested in that by working there so I would say zero. 

[kpd905]

Going over 5% would make me nervous.

[minority_finance_mo]

Some 20% of my portfolio is in company shares - the ESPP is just too good to pass up. I do only have ~$15K in assets, though, since I just graduated. I would not have the same level of (or lack of) diversification if this number was higher.

[TomTX]

I'm currently struggling with this question too.

Right now, I own 7.4% of my investment portfolio as two company stocks, all acquired via 401(k) match. I'm holding onto them because they were "free", and my current employer's stock has actually been going gangbusters in recent years. But this is small fry compared to my unexercised stock options, which comprise a whopping 42% of my portfolio at current market value. This would make my hair stand on end if I actually sunk my own money in, but I haven't. I just try to manage my expectations and exuberance when I check my NW, because... yeah. A meteor can flatten my employer tomorrow.

It makes sense to ditch most (if not all) of one's company stock at FIRE, because the risk/volatility probably isn't worth it. But I'll admit to having a slight bit of fun when the stock price does soar. I'm just hoping that it can hold on until I'm ready to FIRE and cash out.

The match and options are no more "free" than your salary was "free."

You worked, you earned the options. It's real money, it's your money, and it is at risk you say you would not want with your own money.

[Dicey]

I'm currently struggling with this question too.

Right now, I own 7.4% of my investment portfolio as two company stocks, all acquired via 401(k) match. I'm holding onto them because they were "free", and my current employer's stock has actually been going gangbusters in recent years. But this is small fry compared to my unexercised stock options, which comprise a whopping 42% of my portfolio at current market value. This would make my hair stand on end if I actually sunk my own money in, but I haven't. I just try to manage my expectations and exuberance when I check my NW, because... yeah. A meteor can flatten my employer tomorrow.

It makes sense to ditch most (if not all) of one's company stock at FIRE, because the risk/volatility probably isn't worth it. But I'll admit to having a slight bit of fun when the stock price does soar. I'm just hoping that it can hold on until I'm ready to FIRE and cash out.

The match and options are no more "free" than your salary was "free."

You worked, you earned the options. It's real money, it's your money, and it is at risk you say you would not want with your own money.

+1

[iwasjustwondering]

I get around an 18% discount (if I buy 85 shares, the company gives me 15, so I get slightly more than 15%).  So I take advantage of it by putting 2% of my salary into the program.  Since it gives me an 18% boost right from the day I buy it, my company stock would have to tank significantly in order for me to lose any money I put in.

Having said that, I'm not comfortable keeping too much money in the program.  I basically use it as a pass-through for college savings.  I put in my 2%, let it sit long enough to scoop up the 18% increase (and usually there is another boost from stock growth), and then put the money into the 529 plans.  I'm wondering if I should put in more than 2%.  I think we can go up to 15%, but that is too rich for my blood.

[Roadhog]

I used to buy company stock when we got a 15% discount.  I would buy it and hold just long enough and then sell it as I don't want to be over invested in my company.  Just getting the paycheck and 401k is invested enough.   Now that the discount is just 5% I don't buy it.

[Livewell]

It's been 15 years since I had to ask myself this question, but my wife and friends have been in this situation many times.

My advice has always been you are already very leveraged in what ever company you work for - if they do well you are well positioned to capture future upside via pay, promotion, espp, options, rsu, etc.  A prudent investment approach is to diversify what you currently have acrued as soon as it's vested to avoid downside risk.

This comes from seeing too many paper riches go up in smoke during to dot bust, or worse seeing people buy options thinking they could really cash in but instead ending up with a huge tax bill.

[Chris22]

I work for a F100 Megacorp, and ~33% of my 401k is in company stock.  The company is huge, and my third is outperforming the rest of my portfolio.  Yes it's risky, but as it's a huge diversified company across many industries.  My risk of layoff is much higher than the (essentially) zero chance the company the company goes under.  My investment horizon is also probably significantly longer than most others here (I'm probably ~25 years from retirement).

[Terrestrial]

I think it somewhat depends on how you got the stock - if it's a discount purchase from market value or in the form of a match (i.e. you have to put some of your money up to secure it) then i would be judicious with how much - the 5-10% range max seems appropriate.  If you just get granted the stock as part of your compensation package without any match/buying requirement (how I got stock before I was a partner) it is what it is, as long as you are happy with the rest of the package independent of those stock grants, then it's just gravy.  Yes as someone else pointed out it is not 'free' even if you dont have to 'pay' for it, but if the rest of your package is competitive with what you could get elsewhere then does it really matter?

It's worth noting that depending on how the company is set up people who become partners/part owners can end up with a large portion of their assets being company stock. This used to make me nervous but it's by design, you are more committed to the success of something when it 'hurts' a little if it fails, and on the flipside you also have much wider insight and ability to make sure that it doesn't.  I finally decided that it's not much different than the risk incurred by many who start small businesses, who often have a significant portion of their assets tied into that.  I'm sure different people feel differently about this situation but for me the benefits (financial and otherwise) have outweighed the risk....though i wont deny that there IS risk.

[StockBeard]

I'm on the same boat as many before: I'd recommend less than 5%
And that being said, I have close to 15% of my assets in my company stock... simply because selling now would mean more taxes... I'll sell next time I need to rebalance.

[spud1987]

I have about $20k in company stock, out of a stash of about $700k. So roughly 3%. My company has a stable dividend that yields about 4% and my company's stock is relatively cheap compared to the rest of the S&P 500 (looking at historical P/E ratios). Also, even if I get laid off (which is a possibility, see my earlier posts) I would not be in a position to sell the stock. That being said, I don't think I would go above 5% of my investment. Some employees here have almost 100% of their 401k in company stock, which seems crazy to me!

[Kansas Beachbum]

Only get as much as you can get for a serious discount. And then only hold it for as long as you have to in order to vest or meet the requirements. Then sell every share you can.

This.  Enron, Worldcom, etc.

[Chris22]

Only get as much as you can get for a serious discount. And then only hold it for as long as you have to in order to vest or meet the requirements. Then sell every share you can.

This.  Enron, Worldcom, etc.

Every situation is different.  For every company there's a different answer.  Enron and Worldcom were basically pure play companies, so much riskier from a diversification standpoint.  If you worked for something like a GE (not a great example given their performance, granted), there's a much different risk picture in them going belly up versus someone in a pure play environment.  Of course the answer back to that is that Apple is a (basically) pure play as well, and I'd rather invest in AAPL than GE, but that's neither here nor there. 

[RoseRelish]

Just my €0.02

If you said this out loud would it be "Just my two cents" or would you say "Just my two Eurocents"?

And I echo everyone else saying to take advantage of any free/reduced price ways to buy shares and sell when possible. Having both income and net worth tied to one company is a scary proposition.

[sisto]

This has gotten more response than I expected. In my case the RSUs are part of the compensation package and are gravy in my case. The ESPP is at a discount, I can contribute up to 5% of my pay used to be 10% and I miss those days. Then every 6 months stock is purchased at a 15% discount of the cheaper price either the open or close price. So I take advantage of that. I used to use this money to pay off debt or for major projects/purchases. Since working on saving more money I've been sitting on the shares. Now I don't want to take the tax hit to sell and have been planning on using the money to bridge the gap for ROTH ladder, but thought it was worth asking what people here thought.

[Catbert]

My general rule is not more than 4% of your portfolio. 

I did have one stock that at one time made up ~10% of my portfolio (not an employer).  I justified the large % b/c it was the result of a major run up in the stock price rather than my investment.  An investment of $4200 had increased over 15 years to way over 100K.  I sold 1/2 the stock a few years ago so its back sorta inline.

 

[zinethstache]

this thread was good, it made me check my overall allocation of corporate stock. I like to have no more than 5%, and right now it has crept up to 6%. I like to rebalance/review my allocations each christmas holiday, so now I know I will have to tweak that this winter:)

Historically my company stock has outperformed all other allocations so when it gets a bit high I don't freak out or anything.

Once I RE, I will dump it for something more neutral.

[frugalnacho]

I get around an 18% discount (if I buy 85 shares, the company gives me 15, so I get slightly more than 15%).  So I take advantage of it by putting 2% of my salary into the program.  Since it gives me an 18% boost right from the day I buy it, my company stock would have to tank significantly in order for me to lose any money I put in.

Having said that, I'm not comfortable keeping too much money in the program.  I basically use it as a pass-through for college savings.  I put in my 2%, let it sit long enough to scoop up the 18% increase (and usually there is another boost from stock growth), and then put the money into the 529 plans.  I'm wondering if I should put in more than 2%.  I think we can go up to 15%, but that is too rich for my blood.

Why wouldn't you go up to 15% (or as high as they let you)? Aren't you leaving money on the table by not purchasing at that substantial discount and reselling it asap?

[iwasjustwondering]

I get around an 18% discount (if I buy 85 shares, the company gives me 15, so I get slightly more than 15%).  So I take advantage of it by putting 2% of my salary into the program.  Since it gives me an 18% boost right from the day I buy it, my company stock would have to tank significantly in order for me to lose any money I put in.

Having said that, I'm not comfortable keeping too much money in the program.  I basically use it as a pass-through for college savings.  I put in my 2%, let it sit long enough to scoop up the 18% increase (and usually there is another boost from stock growth), and then put the money into the 529 plans.  I'm wondering if I should put in more than 2%.  I think we can go up to 15%, but that is too rich for my blood.

Why wouldn't you go up to 15% (or as high as they let you)? Aren't you leaving money on the table by not purchasing at that substantial discount and reselling it asap?

Good question.  I should do more.  Right now I put so much directly into the 529s, but I should believe more in my own plans and flow more through the espp.  I am almost obsessive about depositing $ into the 529 plans, although I'm relaxing a bit as I accumulate some cash in them.