Company Stock Distribution Analysis Calculator


Let’s face it, a 401(k) plan is one of the most powerful weapons you can have as you’re a part of your retirement investment arsenal. According to a report by Deloitte, more than 75% of the Americans contribute to their employers 401(k) or even a similar contribution.

Too much of a single stock may be a hazard to your investment portfolio just in case the stock falls. This not only applies to the stocks, it applies to a general asset class including bonds, real estate, mutual funds and so on. In fact, many investors who have been in the market long enough advice against having one class of asset in your portfolio. This makes your portfolio very vulnerable to the changes in the market.

Common wisdom to all the investors and financial advisors is that the workers who are participating in the 401(k) plans should not have more than 10% of their accounts assets invested in the employer’s stock. according to a study by the Greenwich associates, the company stock accounted for 23% of the account values.

While the plan can pave a strong way to a larger pool of investment the wrong strategy that a worker could implement is shortchanging the savings. Advisors say that the safest way to invest in the 401(k) plans is to maintain only 2%.

That may not be all, there can be a second whammy to such stocks that are known to be declining in value. Finance analysts and advisors further recommend diversifying away from the employer’s industry. Assuming that you invest in a high-tech company, you may want to reduce your stake in other tech companies in the industry.

Use our company stock distribution calculator to see how such a distribution might benefit your retirement plan.

Company Stock – How Much Should I own?

Before investing in the company stock, here is a warning that you should always keep in mind. Investing in the company stock is risky. Generally, most advisors will advise you not to exceed 5-10% of your entire holdings.

Most of the employers as a part of the 401(k) plans require the workers to invest. But things have significantly changed over the last decade with the target-date funds moving into the spotlight and nearly 70% of the 401(K) plans to offer them.

According to a report by FINRA, while some existing regulations prevent the companies from investing more than 10% of the company’s own stock, there are no such restrictions are in the place of the 401(k) plans

Nonetheless, there are some benefits that accrue to an investor when he or she invests in the company’s’ own stock, though not many, they are worthwhile. Such benefits would include having the opportunity to buy the stock at a much-discounted rate. Therefore, even though investors advise keeping the investment to the minimum, the issue is surrounded by some skepticism of a kind.

To ensure that you are on the safer side, you have to come up with a strategy, keep your accounts as simple as possible. Take control of your retirement by setting a maximum limit to your employer’s allocations both in the 401(k) and also your overall investment portfolio.

There are unique opportunities that present themselves in the course of trading that would allow you to diversify your portfolio, such include rising prices of the stock. at this point you should consider selling. Assuming that you leave the company, here, you have the chance of actually utilizing the net unrealized appreciation rules. What normally happens is that you have the chance of distributing the company stock to a taxable account, this is while you are doing the 401(k) rollovers into a new retirement with some the remaining funds.

What Could Go Wrong?

There are plenty of things that could go wrong, having a sizable amount of the company’s’ stock could have some negative consequences. In case you are reliant on your company for the most basic things such as health care, and other benefits this could leave you vulnerable.

Assuming that the company faces some few rough patches, there may be a huge possibility of staff reductions. A possible scenario is when the company sees a decline, an investor may end up suffering what we’d call a compounding loss by being laid off.

What most people don’t know is that their loyalty to the employer could blind them and leave them in a tunnel vision. There are some instances when the employee was misled by the management and therefore loosing so much in terms of their investment.

Calculate Your Next Steps

Basically, your retirement that you have put to work could lead up to your entire portfolio. If not your entire portfolio, it may be a part of a larger portfolio and the employer may entice the employee to stock up their portfolio by buying and retaining the company stock.

There are some other companies that will match employee plan contributions only with the company stock rather than the conventional method of cash. However, it is important to note that the companies with this requirement has declined to less than 20%.

Another disadvantage having too much stake in your company stock is that the company may restrict your ability to sell the stock within a certain number of years or even during a certain time or even before a certain age, however, most of the companies are loosening so much on that policy.

The Different Types of stock – where does your company stand on?

There are different types of stocks  – which kind of company your organization stands for?

  • Blue-chip stocks: these are the stocks that belong to the well-established companies with some stable earning. The companies have a low liability inventories like the debt and therefore, they are able to pay regular dividends.
  • Beta stocks: these are the stocks that are measured by calculating the volatility in its price. Basically, the beta stocks can be positive or negative value.
  • The cyclical stocks: where some of the company may be more affected by the economic trends. This means that where the economy is experiencing a staggering growth, the stock will experience a moderate growth. If the economy is booming, then the stock will fasten in growth.
  • The defensive stocks: these, unlike the cyclical stocks, are unmoved by the state of the economy. These stocks are preferred in an economy which is poor.
  • Income stocks: they are the stocks that distribute a higher dividend to the investors in relation to the share price. A higher dividend means larger income.
  • Speculative stocks: these are the stocks offered by the corporations that have little to no earnings and poses investors with a very high volatility.
  • Tech stocks: these are the stocks offered or belonging to the tech companies.