Owning Too Much Company Stock

Question:

I work for Coke. I was pretty happy to hear that you don’t mind Coke stock as an investment. I have a ton of shares through my benefits and retirement plans. I was thinking of trimming to buy Diageo, another I’ve heard you talk about. What do you think?

Answer:

While you are on the right track to consider diversifying, you highlight one of the main problems we see: employees owning too much of their company’s stock. Undoubtedly, there are several great companies in Atlanta, including The Coca-Cola Company (NYSE: KO), The Home Depot, Inc. (NYSE: HD), and United Parcel Service, Inc (NYSE: UPS). Many employees own their company’s stock in their 401(k), some have stock options and own shares in their personal portfolios. When we add it up, well more than 10% of their personal wealth is invested in one company’s stock. The problem is that this is the same company that provides you a paycheck. We’ve seen it happen with Wachovia and ING as well. The money you have in savings to support you if you were laid off is tied up in the same business that may have needed to let you go.

Often investors believe because it is a great company to work for that it is a great stock to own. There may also be peer pressure to buy company stock, or it is part of the corporate culture to never sell. There is also the thought process of, “It has always done well. Look where it has gotten me.” Regardless of why you own as much as you do, we advise that you never have more than 10% of your portfolio invested in any one stock. Just because you work for a company does not mean that you directly influence how the company is run.

We recommend that investors diversify across multiple asset classes and multiple sectors. When one sector is out of favor, others may not be. This reduces your risk that your investments will suffer if your industry experiences a prolonged period of slow growth.

To address your thought of trimming your position in Coke for a position in Diageo plc (NYSE: DEO), we would again advise you to be sure you aren’t putting too much of your portfolio in a particular industry. While we like Diageo shares and currently recommend them, if Coke is the only consumer staple stock that you own, we would not advise purchasing another beverage company. It is important to not only diversify across different sectors, but also across different industries within a particular sector. This is again to provide you with a less volatile portfolio and hopefully add some protection through diversification. If you owned some other consumer staples stocks in different industries already, we would be ok with a position in Diageo.

At Henssler Financial we believe you should Live Ready, which includes diversifying your portfolio.  If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com

Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.

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