Took a look last week at SaraJane who wondered whether to go to a "professional" for advice on a 401(k) rollover. My advice, worth what it cost her, was to go to Fidelity or Vanguard and have them do the paperwork. And then found this out in a follow-up email from SaraJane.
" love this kind of personal attention! Thanks for the advise!
I know that I want to get my money out of my old employer's stock (company match portion was in their stock and I left fully vested - I get extra points for that right?), so I guess that is really my basis for needing to do something.
Time to be more of a grown up and start doing my research."
SaraJane, I think the word is 'advice' but close enough. But the conundrum is the company stock being the match. I do not know why companies do this. I assume it has something to do with accounting or it doesn't count against earnings or it's just easy for the company.
I don't know. The companies I worked for said "Here's the money, here's the available fund choices. Go for it but don't ask us for advice." (Companies don't give advice because they are afraid of getting sued if, and when, the funds go down. Good companies are starting to give advice because they figure they get sued all the time anyway and it makes sense to have knowledgable employees.) But we didn't get the match in company stock.
But a lot of people do and a lot of financial advisors, writers and know it alls, advise against it. Because of Enron. Two things happen when you get company stock. First, if the stock is going up and going up by a lot, people assume it will continue to go up. Like a rocket. But rockets come down as well as go up. But most people don't notice when the rocket starts to level off. Oh, they notice but they don't do anything because the rocket might just be taking a breather and, more importantly, people are lazy. Which is the second point.
Don't get me wrong. I've made a lot of money by being lazy. If the market is going up, I sit there and do nothing because it might go up more. Or it goes down and I figure it is too late to do anything so I sit and it goes back up again.
The difference is that I'm looking at the market and if you have your match in company stock you are looking at one stock. Whole markets rarely, if ever, go to zero. But individual stocks can, and do. Like Enron. Or dot.com sock puppet stocks.
My brother-in-law has the match problem. He works for a very successful oil company with a CEO that figured out about ten years ago that the last refinery had been built in the US sometime in the Nixon administration. Plus they were unloved because of environmental issues and it's just a messy business in general. Unloved, no supply of new units and this guy saw it when nobody else did. Stock went, and is, going up and going up a lot and my brother-in-law gets his match in the stock. Great. And I told him to get out or cut back or something. Because the oil business is the poster child for boom and bust. And my brother-in-law was way overweighted to the stock.
Has he? I don't know but we did determine that he could switch. In fact, the minute the stock match hits his account he can swith into something else. This is great because he has choice. I don't think the suckers at Enron did.
But this is where you cannot be lazy. IF you get your match in company stock, call up or email HR and find out your options. If you cannot switch I would question the long term outlook for the company and just accept the fact that your nest egg can go to zero or start looking around for a new job.
If you can switch (and here again things get difficult because you have to do something), figure out your company stock as a percentage of your net worth. If it is too high, switch some of the stock to other alternatives in the plan. If you are good, here you yell GOTCHA because I tried to slide one by you. I didn't define 'too high' and I won't. You figure it out.
So first find out if you can switch and then figure out what you are comfortable with and make the reallocation. Or do nothing. But be aware of the consequences because the people at Enron sure are.
And SaraJane, not really about "Time to be more of a grown up and start doing my research." Just call Fidelity or Vanguard and dump it into an index fund.