Company's stock going down. What to do?

[Zillionaire]

I've been contributing to my company's Roth IRA (401K) since day one. Half of my contribution to company's stock and the other half go into blended fund investments. But recently their stock keep going down and I'm losing money every day. Please input some advice.

Thanks so much

[sweeps]

Immediately start reducing exposure to your company's stock.

2 reasons:
(1) You already depend on your company for a paycheck and benefits. If your company runs into financial difficulties, you could lose your paycheck, benefits, and half of your retirement fund, all in one fell swoop.
(2) You should never have 50% of your portfolio in one company, period -- regardless of how confident you are in that company's success.

[GREENBACK]

[quote=sweeps;188130]Immediately start reducing exposure to your company's stock.

2 reasons:
(1) You already depend on your company for a paycheck and benefits. If your company runs into financial difficulties, you could lose your paycheck, benefits, and half of your retirement fund, all in one fell swoop.
(2) You should never have 50% of your portfolio in one company, period -- regardless of how confident you are in that company's success.[/QUOT
I have to agree. Everyone should remember those poor folks that invested in Emron that lost everything because they believed their company's stock was solid. Who knows where the next fall out like this will be.

[Snave]

You will want to check to see your companies rules on their matching contributions. A lot of companies match in their stock. Some of them do not let you re-distribute those funds for a certain amount of time. Others, let you redistribute immediately. My previous employer initially would not allow for reallocation of comapny funds. After the Enron debacle, that loosend and they allowed those over 40 to reallocate. I think they got flack for putting an age on this and then ended up allowing people to reallocate at any time. They would always match in company funds and then it was up to the employee to go back in and reallocate. I would go online and reallocate the company stock about every quarter.

[disneysteve]

I agree. Stop buying company stock with your contributions. You may want to consider selling some of the stock you already hold, but that would depend on how much you have, how old you are, what company we're talking about and how much value it has already lost.

[Zillionaire]

Should I put 100% into bond investment?

[disneysteve]

Originally Posted by Zillionaire

Should I put 100% into bond investment?

Not unless you are 90 years old.

[disneysteve]

Seriously, how you should allocate your 401k depends on a lot of factors.

How old are you?
Are you married?
What other investments do you have?
Do you have any pension plan?

I don't think anyone should be 100% bonds in their retirement portfolio.

[Broken Arrow]

Originally Posted by disneysteve

Not unless you are 90 years old.

Just wanted to say that that made me laugh out loud.

[disneysteve]

Originally Posted by Broken Arrow

Just wanted to say that that made me laugh out loud.

You're welcome.

[jIM_Ohio]

Do you think the stock price is going down because you work for a bad company or because 499 of the 500 stocks in S&P 500 went down on same day (bad news everywhere)? I am trying to remember the one stock which went up and I forget which one it was (I digress).

If you sell, you admit you lost money.
If you wait, you have a chance to recoup losses

Each time you bought, you accumulated more shares. That is a good thing. Then you reap the profits on the way up.

I am down 30% across the board this year. My company stock (lost about 5%) is my best performer outside of my bond funds.

I like 5-10% allocated to company stock if you work for a good company (I do). My wife also works for a good company and we allocate 5% of her 401k to her company stock. Both stocks pay dividends and are among the best companies in the world.

--

You have 50% going to a balanced fund and it lost money- are you looking to change that too?

My advice- keep 50% going to balanced fund
put 45% of new money into 2 or 3 other funds (large cap, small cap and international)
put 5% into company stock (assuming it is a good company).

Wait 2 years, then come back and ask me what to do with company stock.

If you work for a bad company, find a new job now and roll this into an IRA.

You only lost money on paper thus far. More than 1 trillion was lost on paper during this credit debacle (or so I read). You are not alone. You only realize your share of the loss if you follow the advice other posters said by selling your shares now.

[sweeps]

I disagree with Jim. I don't care how enamored someone is with a company; you should not have half of your portfolio in one stock. Start reducing your investment in your company's stock now. AND change your future contribution.

[Broken Arrow]

I can see both side here.... Perhaps somewhere middle of the road? Sell them in regular increments? Kind of like DCA in reverse.

It would also help to know what this exact company this is. Stock-wise, is this one that's going down the tubes, and therefore,it would be best to eliminate the stock position as soon as possible, or is this one that have a lot of upside potential, and could afford to hang on to them a little longer?

[F16]

Don't sell anything, let them ride, every stock and every company has its days in doghouse. But you certainly have to reduce that 50% to about 15% max.

[Like2Plan]

Originally Posted by Snave

You will want to check to see your companies rules on their matching contributions. A lot of companies match in their stock. Some of them do not let you re-distribute those funds for a certain amount of time. Others, let you redistribute immediately. My previous employer initially would not allow for reallocation of comapny funds. After the Enron debacle, that loosend and they allowed those over 40 to reallocate. I think they got flack for putting an age on this and then ended up allowing people to reallocate at any time. They would always match in company funds and then it was up to the employee to go back in and reallocate. I would go online and reallocate the company stock about every quarter.

Snave,
I believe you are right about the rule change. My DH is now allowed to invest the company match in anything.

I recently read an article about company stock ownership and what a psychological barrier folks have to diversifying their own company stock. Sure, Enron tanked, but not my company... ( Even folks in large financial companies who study financial stuff in college and you would think knew better. )
But, low and behold I found I had the same trouble with DH's 401k. Another thing I was worried about was did they keep track of the amount of money the employee kept in company match as a possible loyalty check? I discussed it with DH (since it is his money technically ). DH said to go with the best financial management of the money and don't worry about a possible loyalty meter.
I worried that I was making the right decision (I know folks who were in MSFT early on--employee stock ownership enabled them to be very secure and gave them economic freedom I can only admire.) But, DH's company is no MSFT (in the early years) and I finally put him 100% (all past contributions, all new contributions and company match) into one of those retirement target funds. Surprise--once I did it, I haven't had the slightest desire to adjust any of it back to company stock.
In view of the stock market volitility right now, I would be hesitant to make any large moves (with existing contributions--unless you think your company isn't going to come back), but you could make changes to your future contribution allocations. You could also plan to pare back your % of company stock, but not all at once.

[skruggie]

What about this scenario -

I keep a roth ira and max out the contributions which is very divirsified. Losing money daily, but that's life in the current stock market.

In my 401k, I have 46% company stock. This is a very well known company that produces movies, tv shows and has theme parks in Florida, to give you an idea of the company I am referencing.

The rest of my 401k is diversified between large cap, small cap and international funds.

Would you recommend removing another 20% of my company stock in my 401k out of the company and into mutual funds?

I also have a 401k match, and it is diversified pretty much the same way - 40% in company stock, and the rest spread across mutual funds.

[sweeps]

Originally Posted by skruggie

Would you recommend removing another 20% of my company stock in my 401k out of the company and into mutual funds?

Yes. I don't care how well you think a company will perform -- it's not wise to have half or even a third of your portfolio invested in that one stock.

This is even more true if the company is your employer.

I wouldn't recommend selling all of it in one shot, you may want to take several months or a few years to whittle down your stake.

[skruggie]

Originally Posted by sweeps

Yes. I don't care how well you think a company will perform -- it's not wise to have half or even a third of your portfolio invested in that one stock.

This is even more true if the company is your employer.

I wouldn't recommend selling all of it in one shot, you may want to take several months or a few years to whittle down your stake.

are you including the company match funds in that percentage as well, or just the initial investment?

[disneysteve]

Originally Posted by skruggie

In my 401k, I have 46% company stock.

What percentage does that represent in your overall portfolio, though? It might be 46% of your 401k but a much smaller part of your total picture.

I agree with Jim that 5-10% in any one company is about the most you should do. Is Disney going to close up anytime soon? I certainly hope not, but if you look back at their history, they've had some pretty rough patches where the stock underperformed for extended periods.

sweeps - I'm not sure that Jim was suggesting that 50% in company stock is necessarily a good thing, but rather that you can rebalance in more than one way. One way is to sell current holdings. That makes a paper loss a real loss. Another way is to rebalance by adjusting future contributions so that the company stock gradually becomes a smaller and smaller part of the portfolio. If you think the prospects are good for the stock to recover, that might be the smarter way to go in the long run.

Jim, if I misread your intent, please jump in and correct me.

[skruggie]

Originally Posted by disneysteve

What percentage does that represent in your overall portfolio, though? It might be 46% of your 401k but a much smaller part of your total picture.

I agree with Jim that 5-10% in any one company is about the most you should do. Is Disney going to close up anytime soon? I certainly hope not, but if you look back at their history, they've had some pretty rough patches where the stock underperformed for extended periods.

I would say that compared to my total portfolio - roth ira, traditional ira and 401k, the amount of company stock I have is a much lower percentage than if you just look at my 401k.

My traditional iras are rollovers and are not being contributed to, they are all in mutual funds. My roth that I max out yearly (although to be fair, this is only the second year I have been able to do this) - also divirsified in large cap, small cap, international and technology funds.

As a total breakdown, I am guessing this would put my company stock contributions probably in the realm of 15-20% (if even that) compared to the overall picture.

Do you think this makes a difference in how I should be spreading out my 401k? Or do you think I should still lower the company stock division? I also will be vested in a pension in 4 years but its not clear to me exactly how the pension distribution works.

Agreed that I work for a company that certainly isn't going anywhere soon, and financially is doing very well considering the current economic atompshere, but I am concerned about the long term.