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Jewish World Review Feb. 22, 2001 / 29 Shevat, 5761

Mary Deibel

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Consumer Reports


How to tell if you own too much stock in one company

http://www.jewishworldreview.com -- From his winter home in Fort Myers, Fla., Procter & Gamble pensioner George Faye keeps a snowbird's keen-eyed view on the price of his company stock.

"It's one thing I check every day," says Faye, 61, who spent 35 years as a property manager at the company's Cincinnati headquarters before retiring in 1996.

Like tens of thousands of current and former employees, Faye owns stock awarded through a company profit-sharing plan, and he saw his fortune rise and fall when P&G shares plunged from $96 to $52 last year before rebounding to the mid-$70s.

Rather than trust his financial fate to one company, Faye "held onto 10,000 shares but sold another 10,000 when I retired and put the money into 18 different stocks."

He diversified, which as experts always say, is a lesson frequently forgotten when stock prices soared during the 1990s. But with stocks coming back to earth, advisers are reminding people - again - not to tie up too much money in one company's stock.

That sorry lesson was learned by workers for Carter Hawley Hale, a department store group, and Color Tile, a nationwide home improvement chain.

Employees at the two firms had to buy company stock for their 401(k) plans and wound up losing their retirement savings when the companies went broke during the booming '90s. Among the workers was Edith Thomson, a San Francisco department store gift-wrapper for 41 years who saw her $84,000 retirement account wiped out with Carter Hawley Hale's bankruptcy.

After Thomson told her story in Washington, Congress passed the 401(k) Protection Act, which does not allow companies to make employees invest more than 10 percent of their 401(k) assets in company stock.

Such limits don't apply to firms owned by Employee-Ownership Stock Plans or profit-sharing programs such as P&G's, which contain company-only contributions. Nor do federal limits apply to stock options, which dot-coms used to reward workers before the high-tech industry went through a shakeout.

The 401(k) Protection Act seems to have worked well in the two years since it took effect.

Pensions & Investments magazine reports that 401(k) investments held in company stock fell from a 35.2 percent peak two years ago to 30.2 percent last year at the 1,000 largest corporate retirement-savings plans. At the largest 200 companies, the drop in company stock ownership fell from 41.2 percent in 1998 to 35.5 percent last year.

"But the bad news is: Congress can't legislate away ignorance on the part of workers who keep investing more than is prudent in their own companies," says retirement specialist Michael Scarborough of the Scarborough Group of Annapolis, Md.

"As a loyal employee, you want to participate in company growth by being a shareholder, but having too much of your money in company stock can be double trouble if the company falls on hard times and you lose your job just as your stock takes a dive."

Scarborough's client list is heavy with current and former workers from AT&T and Ma Bell spinoff Lucent Technologies, two widely held stocks that have lost more than $300 billion market value lately, prompting restructuring and layoffs.

Some workers fared much better, of course. For instance, the 63 percent jump in Citicorp stock helped boost its employee 401(k) plan's returns by 30 percent over a one-year period ending last Sept. 30.

Scott Boswell, managing director for institutional investment management strategy at Banc of America Capital Management in Charlotte, N.C., says investment education has helped get more employees to put less into company stock.

"To the credit of education efforts, many 401(k) participants are staying the course with appropriate allocation of their assets," he says.

Boswell adds that workers who stayed with their company's stock when it enjoyed a big run-up during the 1990s may need to rebalance their investment portfolios, whether their company stock got hit last year or not, to save them from being over-invested.

As for P&G retiree Faye, he has seen his 10,000 P&G shares recoup half of last year's paper losses, and he hasn't had to sell because he can count on other stocks.

"Sometimes I wish I sold all my shares back when P&G was at $96," he says, "but I was lucky I could afford to hang onto my kids' inheritance rather than sell the stock when it was hurting."

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