401k caveat

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BV3273
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401k caveat

Post by BV3273 »

Hello,

I was reviewing my 401k plan over the weekend. My company match vests as I outlined below. The caveat is that any dividends paid on company stock that was purchased with company match funds and are fully vested - 100%. I limited my company stock to 5% of my portfolio. I feel it gives me some skin in the game. Should I go for the full allowable percentage - 10% - to make the most of this? The stock is a dividend aristocrat paying around 1-2%.

I am coming up on my 3 year anniversary.

1 year - 25%
2 years - 50%
3 years - 75%
4 years - 100%
Jack FFR1846
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Re: 401k caveat

Post by Jack FFR1846 »

Personally, I would put zero into company stock in a 401k. I personally know people who worked at Polaroid and lost everything, doing exactly that but with far more % than you're talking about. I also have RSUs and ESPP at my current employer and won't hold a dollar in their stock any longer than it takes it to release to sell in my account. And it's a strong, stable company.

I hear Enron was similar in how people were affected to Polaroid.
Bogle: Smart Beta is stupid
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arcticpineapplecorp.
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Re: 401k caveat

Post by arcticpineapplecorp. »

BV3273 wrote: Mon Sep 14, 2020 3:23 pm Hello,

I was reviewing my 401k plan over the weekend. My company match vests as I outlined below. The caveat is that any dividends paid on company stock that was purchased with company match funds and are fully vested - 100%. I limited my company stock to 5% of my portfolio. I feel it gives me some skin in the game. Should I go for the full allowable percentage - 10% - to make the most of this? The stock is a dividend aristocrat paying around 1-2%.

I am coming up on my 3 year anniversary.

1 year - 25%
2 years - 50%
3 years - 75%
4 years - 100%
read Jack FFR1846's post. follow it.

the only things I will add are the following:
1. feelings don't help you as an investor. So don't have feelings about your investment decisions.

2. you already have skin in the game. Your livelihood is dependent upon this company. Why would you want to put both your income/livelihood and savings on the line unnecessarily?

3. there's risk and then there's smart management of risk. Investing in one company is taking all sorts of risks you don't take when you own the entire market (stock, size, style, sector, manager, country). Why not eliminate risks you don't have to take and only get compensated for the risk you have to take (market risk)? Even if your company outperforms the total market, were you compensated ENOUGH for having taken the additional risk? I.E., does your company's stock guarantee a risk adjusted return above the market?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. get a plan: www.bogleheads.org/wiki/Investment_policy_statement
carmonkie
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Re: 401k caveat

Post by carmonkie »

You already have skin in the game being an employee. Are you comfortable adding more risk being an employee and putting your retirement on your company stock. The S&P 500 dividend is 1.7% so not that far from your employer and you are turning the corner to full vesting.

The place where I work went Chapter-11 and wiped off a lot of people retirement. Do not fall for peer pressure or the loyalty speech. Ask your self this question. If you were not working there would you buy 5-10% of their stock just for the dividend?
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ruralavalon
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Re: 401k caveat

Post by ruralavalon »

BV3273 wrote: Mon Sep 14, 2020 3:23 pm Hello,

I was reviewing my 401k plan over the weekend. My company match vests as I outlined below. The caveat is that any dividends paid on company stock that was purchased with company match funds and are fully vested - 100%. I limited my company stock to 5% of my portfolio. I feel it gives me some skin in the game. Should I go for the full allowable percentage - 10% - to make the most of this? The stock is a dividend aristocrat paying around 1-2%.

I am coming up on my 3 year anniversary.

1 year - 25%
2 years - 50%
3 years - 75%
4 years - 100%
In my opinion 10% of portfolio in company stock is not excessive.

Do you get a discount on the share price?

Are you allowed to sell shares of company stock after holding the shares for 4 years, and switch to another investment in your employer's 401k plan?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
BV3273
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Re: 401k caveat

Post by BV3273 »

ruralavalon wrote: Mon Sep 14, 2020 3:42 pm
BV3273 wrote: Mon Sep 14, 2020 3:23 pm Hello,

I was reviewing my 401k plan over the weekend. My company match vests as I outlined below. The caveat is that any dividends paid on company stock that was purchased with company match funds and are fully vested - 100%. I limited my company stock to 5% of my portfolio. I feel it gives me some skin in the game. Should I go for the full allowable percentage - 10% - to make the most of this? The stock is a dividend aristocrat paying around 1-2%.

I am coming up on my 3 year anniversary.

1 year - 25%
2 years - 50%
3 years - 75%
4 years - 100%
In my opinion 10% of portfolio in company stock is not excessive.

Do you get a discount on the share price?

Are you allowed to sell shares of company stock after holding the shares for 4 years, and switch to another investment in your employer's 401k plan?
No discount. I can sell at any time.
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LilyFleur
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Re: 401k caveat

Post by LilyFleur »

Jack FFR1846 wrote: Mon Sep 14, 2020 3:30 pm Personally, I would put zero into company stock in a 401k. I personally know people who worked at Polaroid and lost everything, doing exactly that but with far more % than you're talking about. I also have RSUs and ESPP at my current employer and won't hold a dollar in their stock any longer than it takes it to release to sell in my account. And it's a strong, stable company.

I hear Enron was similar in how people were affected to Polaroid.
Personally, my company stock put me into the double comma club six months after I was early retired.

Then I started following this forum and diversified with mostly index funds. Except for March, I've remained in that double comma club.

That company stock (which I no longer own) has tanked miserably over the past year.

It's a gamble, even with a strong, stable company.
Topic Author
BV3273
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Re: 401k caveat

Post by BV3273 »

Thanks all for the comments. I’m either going to keep it at 5% or cut it down to zero and move it into my other allocations. The company is 110 years old so I’m not very worried about it going anywhere.
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BolderBoy
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Re: 401k caveat

Post by BolderBoy »

Jack FFR1846 wrote: Mon Sep 14, 2020 3:30 pmPersonally, I would put zero into company stock in a 401k.
+1.

If it is a publicly traded company buy it via a mutual fund like Vanguard's VTSAX (total stock market index fund).
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
brad.clarkston
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Re: 401k caveat

Post by brad.clarkston »

BV3273 wrote: Mon Sep 14, 2020 4:10 pm Thanks all for the comments. I’m either going to keep it at 5% or cut it down to zero and move it into my other allocations. The company is 110 years old so I’m not very worried about it going anywhere.
I'm sure workers at Sears (127 yrs old), JCPenny (111 yrs old), and Lord & Taylor (194 yrs old) said the same thing.

I've worked for Fortune 100's for allot of my 31 career years and I've never kept company stock after term. That's the entire point to a ESPP plan, buy low and sell at premium. If your not getting it at 10%-15% off that's really not worth it.
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Stinky
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Re: 401k caveat

Post by Stinky »

BV3273 wrote: Mon Sep 14, 2020 4:10 pm Thanks all for the comments. I’m either going to keep it at 5% or cut it down to zero and move it into my other allocations. The company is 110 years old so I’m not very worried about it going anywhere.
I think you’d be making a wise move in keeping it at 5%.

I think it would be an even wiser move at 0%.

Thanks for taking input from folks on this Board.
It's a GREAT day to be alive - Travis Tritt
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anon_investor
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Re: 401k caveat

Post by anon_investor »

BV3273 wrote: Mon Sep 14, 2020 4:10 pm Thanks all for the comments. I’m either going to keep it at 5% or cut it down to zero and move it into my other allocations. The company is 110 years old so I’m not very worried about it going anywhere.
Is your company stock in your 401k eligible for NUA tax treatment? (see https://www.bogleheads.org/wiki/Net_unr ... preciation)
"If you are holding your employer's stock in your employer provided qualified plan, a special favorable section of the tax law allows you to to pay capital gains tax rates on the stock if you are separating from service with your employer, the plan is distributed in a lump sum, and the stock was purchased by your contributions and employer matches. The Net unrealized appreciation (NUA) of the stock is not taxed upon distribution, and is taxed at capital gains tax rates when sold. Only the taxable cost basis of the stock is recognized as a taxable distribution."


What is the cost basis on these shares? I receive a small amount of company stock in my 401k (makes up less than 2% of my overall portfolio), it comes as part of my company match, and the cost basis is very very small, which makes NUA tax treatment in the future potentially extremely beneficial.
soccerfreak
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Re: 401k caveat

Post by soccerfreak »

Get your full match then sell and buy something else whenever you're allowed.
Topic Author
BV3273
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Re: 401k caveat

Post by BV3273 »

anon_investor wrote: Mon Sep 14, 2020 10:17 pm
BV3273 wrote: Mon Sep 14, 2020 4:10 pm Thanks all for the comments. I’m either going to keep it at 5% or cut it down to zero and move it into my other allocations. The company is 110 years old so I’m not very worried about it going anywhere.
Is your company stock in your 401k eligible for NUA tax treatment? (see https://www.bogleheads.org/wiki/Net_unr ... preciation)
"If you are holding your employer's stock in your employer provided qualified plan, a special favorable section of the tax law allows you to to pay capital gains tax rates on the stock if you are separating from service with your employer, the plan is distributed in a lump sum, and the stock was purchased by your contributions and employer matches. The Net unrealized appreciation (NUA) of the stock is not taxed upon distribution, and is taxed at capital gains tax rates when sold. Only the taxable cost basis of the stock is recognized as a taxable distribution."


What is the cost basis on these shares? I receive a small amount of company stock in my 401k (makes up less than 2% of my overall portfolio), it comes as part of my company match, and the cost basis is very very small, which makes NUA tax treatment in the future potentially extremely beneficial.
I’m probably should have stated that none of these shares are gifted and/or RSUs. They are just part of my asset allocation within my 401k. I just thought it was odd that I’d get paid a dividend on unvested shares purchased with company matching funds.
Topic Author
BV3273
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Re: 401k caveat

Post by BV3273 »

I’ve decided to dump the stock. It’s lagged the market and there is really no reason to own it.
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anon_investor
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Re: 401k caveat

Post by anon_investor »

BV3273 wrote: Tue Sep 15, 2020 9:07 am I’ve decided to dump the stock. It’s lagged the market and there is really no reason to own it.
Oh well guess it is too late to explain that NUA tax treatment is only for company stock in 401ks and sometimes the tax benefit can be substantial.
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arcticpineapplecorp.
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Re: 401k caveat

Post by arcticpineapplecorp. »

BV3273 wrote: Tue Sep 15, 2020 9:07 am I’ve decided to dump the stock. It’s lagged the market and there is really no reason to own it.
good to hear.

I was going to follow up on what Brad.Clarkston said:
I'm sure workers at Sears (127 yrs old), JCPenny (111 yrs old), and Lord & Taylor (194 yrs old) said the same thing.
there are reasons the saying is past performance is no guarantee of future results. it's not just a saying.

understand that even though a company that has lasted a hundred years seems like one that knows how to adapt to changing technology, demographics, tastes, etc. that tells you absolutely nothing about whether they will do it again in the future.

for starters past management is not the same as future management, so just because past management succeeded in pivoting doesn't mean future management will.

perhaps there wasn't competition (or as much) in the past, but there will be in the future.

perhaps there will be regulations or taxation in the future that will be unfavorable, that didn't exist in the past.

on and on and on.

the future looks nothing like the past, so don't stake your future savings on a company's past performance. It's truly irrelevant. See?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. get a plan: www.bogleheads.org/wiki/Investment_policy_statement
pasadena
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Re: 401k caveat

Post by pasadena »

arcticpineapplecorp. wrote: Tue Sep 15, 2020 8:38 pm
I'm sure workers at Sears (127 yrs old), JCPenny (111 yrs old), and Lord & Taylor (194 yrs old) said the same thing.
there are reasons the saying is past performance is no guarantee of future results. it's not just a saying.

understand that even though a company that has lasted a hundred years seems like one that knows how to adapt to changing technology, demographics, tastes, etc. that tells you absolutely nothing about whether they will do it again in the future.

for starters past management is not the same as future management, so just because past management succeeded in pivoting doesn't mean future management will.

perhaps there wasn't competition (or as much) in the past, but there will be in the future.

perhaps there will be regulations or taxation in the future that will be unfavorable, that didn't exist in the past.

on and on and on.

the future looks nothing like the past, so don't stake your future savings on a company's past performance. It's truly irrelevant. See?
Having worked for a huge company that was also around 100 years old, I have to say that wouldn't make me feel safe or confident in their future or their stock. Maybe it's industry-specific, but my takeaway is that, although boasting about how great and modern they were, they were actually a good 30 year behind in terms of culture, and perpetually trying to catch up in terms of trends and technology.

Now I'm in tech, and while it's an "established" tech companies, the differences are glaring. If I had to bet on the future of both companies, my choice would be quickly made.
Topic Author
BV3273
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Re: 401k caveat

Post by BV3273 »

pasadena wrote: Tue Sep 15, 2020 8:59 pm
arcticpineapplecorp. wrote: Tue Sep 15, 2020 8:38 pm
I'm sure workers at Sears (127 yrs old), JCPenny (111 yrs old), and Lord & Taylor (194 yrs old) said the same thing.
there are reasons the saying is past performance is no guarantee of future results. it's not just a saying.

understand that even though a company that has lasted a hundred years seems like one that knows how to adapt to changing technology, demographics, tastes, etc. that tells you absolutely nothing about whether they will do it again in the future.

for starters past management is not the same as future management, so just because past management succeeded in pivoting doesn't mean future management will.

perhaps there wasn't competition (or as much) in the past, but there will be in the future.

perhaps there will be regulations or taxation in the future that will be unfavorable, that didn't exist in the past.

on and on and on.

the future looks nothing like the past, so don't stake your future savings on a company's past performance. It's truly irrelevant. See?
Having worked for a huge company that was also around 100 years old, I have to say that wouldn't make me feel safe or confident in their future or their stock. Maybe it's industry-specific, but my takeaway is that, although boasting about how great and modern they were, they were actually a good 30 year behind in terms of culture, and perpetually trying to catch up in terms of trends and technology.

Now I'm in tech, and while it's an "established" tech companies, the differences are glaring. If I had to bet on the future of both companies, my choice would be quickly made.
Valid point. Thanks!
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