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Posted: 6:00 a.m. Saturday, March 22, 2014

Don't put money in employer stock

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By Clark Howard

ClarkHoward.com


Are you guilty of making what SmartMoney  magazine calls "the dumbest investment move" in your 401(k) at work?

I have never been a fan of putting retirement money in employer stock. Let me be perfectly clear: I believe only employers who do not value their employees offer company stock in their 401(k) plan.

Why shouldn't you buy stock in your own employer? Because when you take your 401(k) money and put it in employer stock, it's like putting all your eggs in one basket. You're getting your paycheck from your employer and you're hoping to build up a healthy retirement on your employer's back.

Doing it that way ignores that companies have a lifecycle just like people. They do well for a period and then they may lose their way over time.

Think of a company like Kodak. They were a real blue chip stock going back in time. Now, they're bankrupt. Or consider GM, which was for decades considered the bluest of the blue chips. Well, they went bankrupt and are only alive and reorganized thanks to the kindness of the taxpayer bailout from you and me.



SmartMoney reports that people who have access to company stock tend to put big chunks of their retirement in it. Yet you shouldn't feel loyal to an employer when they're disloyal to you. What you really want to do is diversify away from your employer.

There's an even sadder punch line to all this. You have all these companies where the corporate chiefs try to pump up the stock for stock options by having employees buy in. Then what do they do? SmartMoney says they overwhelmingly sell company stock, not buy it.

So they use you as cannon fodder to drive up the price of stock so that they can exercise their options as executives and make more money at your expense. Don't let them play you that way!

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