Weekly Market RecapUS data this week was generally positive, and leading economic indicators for April were strong. The minutes of the last Federal Reserve meeting reiterated the view that the weakness in the US economy at the start of the year was transitory due to west coast dock strikes, bad weather and the energy sector. We saw the best data on housing starts in 7 years, but sales of existing homes for April were sluggish. Internationally, European news was positive, in our view, as the European Central Bank appeared to show strong commitment to its economic stimulus program until at least September 2016, and Japanese growth appears to be improving. Against this generally positive backdrop, Chinese growth appears to be slowing. This week we want to emphasize what we view as a major problem in how many people manage their retirement investments. The problem is holding too much stock of the company who is also your employer. Recent ICE/ERBI data shows on average, investors have 5-7% of their 401(k) in their company's stock; some hold far more. Holding significant stock in one company can be risky. Investing in one company is generally riskier than investing in a group of them. This is why we favor diversified ETFs in portfolios. But, with company stock the problem is worse because the performance of the company stock price will be linked to your salary and other benefits. The Enron scandal is one example of this. Many Enron employee believed wholeheartedly in their company, so much so that, at the time of the collapse, 62% of Enron employees' 401(k) funds were in Enron stock. Some employees even held all of their 401(k) in Enron stock. When Enron filed for Chapter 11 bankruptcy in December of 2001, the employees not only lost their jobs, they lost a large part of their savings. This is why we recommend that you should use your investment portfolio to balance risks to your income, rather than adding to those risks. If you hold too much of your company stock, should your employer hit a rough patch, you could lose your job, and see a big hit to your financial portfolio at the same time. Many companies are removing company stock from their 401(k) choices in favor of diversified funds; a move we applaud. The US Supreme Court ruled on two cases recently implying employers may need to take greater responsibility for the investment options that they offer in their employee 401(k) plans. This may lead to further improvement in 401(k) choices for employees. To see our actionable guidelines for 401(k) fund selection, please login using the link below: Disclaimer: Your Portfolio Summary
Ways To Improve Your Portfolio
| ||||||||||||||
| ||||||||||||||
Sunday, May 24, 2015
Your Weekly Update - S&P 500 Hits New Highs
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment