Wall Street Retirement Nest Eggs - Splat
According to GoEnglish.com, to "put your all your eggs in one basket" is "to risk losing all at one time." This notion is oft-touted in the mainstream press for the benefit of non-financial readers. Logically speaking, one would expect the maxim to resonate with investment banking staff who should, by the nature of their work, have a good command of diversification principles.
According to "Wall Street Lays Egg With Its Nest Eggs: Retirement Lessons of the Dumb Moves by 'Smart Money'," it appears that the lessons of Enron and other costly examples of excess concentration have been lost on some. (Wall Street Journal, September 27, 2008). Pundit Jason Zweig regales readers with a litany of bad news bears, including the following:
- "At the end of 2006, Merrill employees had 27% of all of their retirement money in Merrill shares" with losses this year close to $400 million.
- Morgan Stanley employees have "lost some $500 million on their 401(k) holdings of company stock in 2007."
- "At Lehman Brothers Holdings, employees saving for retirement lost 'only' about $200 million on their shares" in the last 18 months.
- "Twelve out of every 100 people whose 401(k)s can hold company stock have at least 60% of their retirement money riding on it."
Generally speaking, employees should heed "excess" concentration that could take several forms, including, but not limited to:
- Company stock in 401(k) plan
- 401(k) company match in form of company stock
- Company stock as part of profit-sharing plan
- Company stock match as part of a dividend reinvestment plan ("DRIP")
- Company stock options
- Career risk tied to fortunes of employer
- Employee ownership via an ESOP
- Company stock in defined benefit plan ...
Wall Street firms are not alone in encouraging employee ownership and that is not necessarily bad, as long as everyone fully understands the risks.
According to the National Center for Employee Ownership, statistics updated in February 2008, suggest that:
- $1.5 million participants were tied to 748 401(k) plans that were "primarily invested in employer stock" with an estimated value of $133 billion
- 10,000 ESOPs and stock bonus and profit sharing plans were "primarily invested in employer stock," with an estimated value of plan assets exceeding $928 billion and impacting 11.2 million workers
- 3,000 broad-based stock option plans encompass 9 million participants
- 4,000 stock purchase plans cover 11 million workers.
What are you doing to track your diversification potential, or lack thereof, as relates to your current employment situation?
Omelette anyone?
