You’ve worked for a great company for a while and have stock that has built up over time. What do you need to know to get the most out of it? Here are three things you need to know about your company stock.
1. You don’t know where your company stock is going.
The value of the stock, for many reasons, could go up or down, but we can’t be sure where it’s going for the following reasons:
A single stock is much more volatile than a group of stocks.
Let’s look at the 2008 crash, for example, one of the worst crashes in history where the stock market was down about 60%. It’s tremendous to have your portfolio drop that much. Sometimes the markets behave that way and if you’re lucky sometimes it happens quickly, but the market has always come back.
However, individual stocks do not always come back.
Even CEO’s and board of directors can make mistakes.
You may have a superstar CEO and board of directors but they’re only human, and humans don’t always make the best decisions. They could be killing it now, but people make mistakes. By having a good chunk of your money in one single company, you are more susceptible to those mistakes than you are if you are invested in a group of several different companies.
Therefore, if you are invested in a group of companies, those mistakes can be offset by better decisions from other companies. For that reason, a portfolio of stocks will be less volatile.
Every single company that exists will eventually go out of business.
The smaller growing companies can innovate, move more nimbly and use current technology to tune into the new cultural changes of the customer base. These actions can take that market share away from older companies since older companies tend to get stuck in their ways.
New companies are always trying to innovate, but they also can go out of business. There are many reasons companies cease to exist and very few companies grow faster than the market throughout their lives.
2. You own too much of one company.
More than likely your income, paycheck, bonuses, and future stock awards all come from your employer. Therefore, a large part of your wealth is tied to the same company. This creates a very undiversified source of income. If this is true for you, you have much more to lose should your company fall on hard times.
3. The government owns some of your company stock.
Any stock you own for any period of time is going to be taxed by the government at the state and federal levels. This is just part of owning any stock, so when you login and look at your holdings you see a big number, you need to remember that it is not all yours. Some of that belongs to the government and they will get it one way or another.
- You don’t know where your company stock is going.
- You probably own too much of one company.
- You owe the government some of the stock that you have in taxes.