How Much of a 401(k) Should be in a Company Stock?

Saving for retirement using a 401k plan.

Matched Asset Plans Boost Retirement Savings

Hewitt Associates reports that most large companies will match up to 50 percent of the investment in 401k plans made by their employees and contribute up to 6 percent of an individual employee's annual salary. Because of this, matched asset plans can help employees bolster their savings for retirement very quickly.

Company Stock Can Lose Value

Financial planners, such as Daniel Moisand with the Optimum Financial Group, advise employees that no more than 15 to 20 percent of their 401k plans should be tied into company stocks. Moisand points to companies like Enron that, in 2001, was found to have bankrupted employees with their stock option plan.

Bottom Line

According to Hewitt Associates signing up for a 401k plan is beneficial in many ways, providing that the employee doesn't invest too much (over 20 percent) in the company stock. Investing in other stocks available to employees will diversify their portfolio, and provide a better foundation for retirement savings.

References

• Bank Rate: Too Much Company Stock In Your Portfolio?
• USA Today: Too many 401(k)s still have too much company stock
• MSN: 7 Ways to Mess Up Your 401K