In Bad Company

My dumbest investment has been keeping too much of my 401(k) money in my employer’s stock. Shares have fallen from $47 in February 2007 to close to $1 recently. I accumulated a lot of shares over 20 years. I knew the dangers of having too much 401(k) money in company stock, but I thought my company was solid, so I chose not to do anything about it. Now, of course, I wish I’d sold at least some. This has been an expensive lesson.

— Pete Brown, Holt, Mich.

The Fool Responds: Ouch. It’s a common temptation to invest 401(k) money mainly in your employer’s stock. The fact that you presumably know so much about the firm is indeed valuable and does give you an edge over other investors. But still, you probably don’t know everything, and even well-respected companies slump or stagnate for a period, while some even go out of business. You might even steer clear of company stock entirely — after all, you already have great financial exposure to it, as you depend on it for your paycheck. 

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