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Information on Company Stocks and Employees
Company stocks - what's in it for me?
There are three major types of companies: sole proprietorships, partnerships and corporations. There are two types of corporations: public and private. Both involve shares, or as they are also known, stocks. However, there is a difference. In a publically owned company, shares are available for the public to purchase and sell at their will, whereas in a private corporation the trading of stocks is entirely internal and often held by a single family or families.
One of the most popular trends by workers today is to invest in the stock of their own company, whether as simple investors trying to make some money or for a retirement fund. There are many reasons for these investments, and they are not always sound. When working for a company, many employees feel they have inside knowledge of the company’s workings, with news of upcoming products and promotions.
However, employees do not factor the change in consumer tastes, the overall economy, interest rates, company financials, unforeseen events or any of many possible events affecting company stock. Another reason for employees investing in company stock is that companies will often match retirement fund contributions such as the 401k with their stock. As well, employees often feel as though they are being loyal to their company by purchasing company stock, without realizing that most corporations take no notice of which employees invest in their stocks and which ones do not.
The Washington Post recently reported that 42% of 401k contributions are in company stocks, and that 3 of every 4 Americans have more than 50% of their retirement savings in their company’s stock. When one considers companies like Enron, where its stock plummeted from over $80 per share to mere pennies, one really has to consider diversifying his or her own portfolio for retirement, rather than focusing on their company’s stock.
While company stock can be an excellent option for many investors, putting all of one’s eggs in one basket is never a good idea. Diversifying one’s portfolio, especially for retirement, is essential to ensure safety in investments. Investing in company stock, while a popular and easy option for many casual investors, is not an intelligent option in the long run. Despite any emotional attachment one may have to a company or investing in company stock, as it seems practical, it is much better for employees to diversify their stock portfolio, for their own benefit.