In the meantime, however, it makes for tremendous volatility for employee or retiree investors. If company stock is the principal source for retirement income, steep price declines can delay or derail plans to retire, or reduce retirement lifestyle. A well-diversified portfolio minimizes the impact of a dramatic decline in one or two or even several stocks. Indeed, most investors building an investment portfolio from scratch would never commit 93 percent of their assets to a single stock. They know that's poor diversification.
Many financial advisers prefer to see their clients keep a much lower company stock commitment.
How much lower varies from planner to planner, but might range from as little as 5 percent to as high as 35 percent. Diversifying often isn't easy for employees, since companies often will match retirement contributions only with company stock. They pressure employees to invest in the company, or they may restrict the sale of company stock. If your employer stock is large cap, consider putting the rest of your money in such assets as small cap, international and bonds. Buying employer stock sold at a discount is probably too good a deal to pass up, but try selling older shares at the same time so you don't increase your overall position.