Journal nelsonal's Journal: 401 (k) plans and Company Stock 5
I just ran across this article today. So I thought I'd bring it up to anyone who might come across this journal. It is terribly unwise to keep an outsized portion of your savings in company stock, for two reasons. First you are not nearly diversified well enough. As an example, if you had two returns over 10 years, one gets 5%/year and the other an average of 7% with 25% std deviation (pretty low compared to big technology stock st deviations (MS had 54% stdev over the last 14 years)). I used 43%, -15%, 35%, -17%, -10%, 25%, 20% -15% -20% and 25%. Which do you think results in the most money after 10 years?
The 5% return. The negative returns throw you further from the geometric mean [nth root of the product of(1+rn)] your geometric return is only 4.5% for the second set of returns. That and the application of correllation to returns is the basis of modern portfolio theory.
The second reason is that if something bad happens to the company you lose your job and your nest egg if it is entirely in company stock.
So, ASAP you should go log into your 401k administrator's [plan sponsors] page (or call if they are out of date) and find out what you are invested in, and speak with a professional (or do some research yourself) on how to allocate your assets to assure you a more prosperous retirement.
That is all, enjoy your weekend, but please go look at your 401k on monday.
The 5% return. The negative returns throw you further from the geometric mean [nth root of the product of(1+rn)] your geometric return is only 4.5% for the second set of returns. That and the application of correllation to returns is the basis of modern portfolio theory.
The second reason is that if something bad happens to the company you lose your job and your nest egg if it is entirely in company stock.
So, ASAP you should go log into your 401k administrator's [plan sponsors] page (or call if they are out of date) and find out what you are invested in, and speak with a professional (or do some research yourself) on how to allocate your assets to assure you a more prosperous retirement.
That is all, enjoy your weekend, but please go look at your 401k on monday.
sad but true (Score:2)
Re:sad but true (Score:1)
Don't forget Bond Investment (Score:2)
In a Bull Market they don't earn as much but after the last bubble burst I noticed none of my market funds that all stock were making any money.
The risk with investing in bonds is inflation will kill their value. Bonds are basically loaning money to people. You make your money back with the interest. If inflation devalues the money beyond the interest, you lose. This is unlikely to happen in the American economy, but almost nothing would suprise me with
Re:Don't forget Bond Investment (Score:1)