By James Saft
(Reuters) – Like all massive risks, holding large amounts of stock in your employer is a way to make an investment home run, but an even better way to strike out.
The sad tale of Chesapeake Energy employees is a reminder of a series of oft taught but seldom learned lessons, namely that when you hold too much of your employer’s stock you imperil your retirement, impair your ability to manage risk and set yourself up for expensive, emotionally driven investment decisions.
A massive 38 percent of Chesapeake’s main 401(k) retirement plan’s assets were in company stock, despite only 5 percent of those assets still being tied up in a vesting period.
It is no wonder that employees jumped at a generous offer to match, dollar-for-dollar, the first 15 percent of their salary with shares of stock. What makes a heck of a lot less sense is why they held on to them after they were free to diversify.
While this has been a bit of a disaster for employees, as Chesapeake shares have fallen by nearly half, I’d argue holding more than 5 percent of your financial assets in your employer’s stock is bad policy whatever the returns and no matter how well run the company.