When it comes to investing, many people appreciate the opportunity to own stock in the company they work for. These investments can be a valuable addition to a portfolio, and consequently, some people are hesitant to sell them and diversify their assets. We’ve found that many clients who are heavily invested in their company stock assume it’d be too costly to diversify, or they feel they’d be forfeiting too much opportunity. But in fact, the opposite is true.
If you’re relying on a portfolio full of company stocks to support a good life for you and your family, the choice to not diversify your assets is often the riskier option. By diversifying your investments, you can typically increase your average returns and reduce volatility (aka “standard deviation”). Here's an example of what that might look like:
Recently, we met with a client whose investments were heavily concentrated in his company stock. We discussed the importance of diversifying his investments to reduce some risk. (After all, if you’re invested in just one area of the market, what happens to your portfolio when that area of the market takes a turn in the wrong direction?) We helped him strategically sell some of his stock and worked with him to design a diversified portfolio.
And guess what happened? Over the course of a year, his company stock went down by more than 50% while his diversified portfolio gained value—even in a difficult market.
So the next time you’re hesitant to let go of some company stock, think about the possibility of not doing so. If you’d like to know more, or want help maximizing your portfolio, we’d love to help! You can schedule a consultation with us here.
Disclosure: All investments contain risk and may lose value. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Diversification does not guarantee profit or protect against market loss. Past performance is not a guarantee of future results.
Dave works with hundreds of Bay Area dentists, physicians and their families. He has a deep understanding of the financial needs of the medical/dental practitioner. He makes planning simple and clear by coordinating both business and personal finances for his clients.
He also works with Silicon Valley executives, professionals, and their families.