It’s been a stunning fall from grace. GE, long considered a stalwart blue-chip company, has lost twice as much value in the past year than scandal-plagued Enron lost when it went out of business in 2001. As the Wall Street Journal explained, GE’s poorly timed investments, troubles in key markets, and overly rosy financial projections destroyed about $140 billion of stock market wealth in that time.
Anyone with money invested in GE stock has felt the pain, but none so acutely as current and retired GE employees who have been counting on income from the stock’s dividend. As the stock price has been cut in half over the past year, so has its dividend.
The Journal quoted Gary Zabroski, who retired after 40 years at a GE aviation factory with an $85,000 pension and $280,000 of GE stock, which is now worth $110,000. The company’s dividend cut has been a game-changer for him: “I never planned on retiring and having to go back to work,” he said. “It’s kind of scary.”
On the one hand, it’s easy to understand why many GE’ers would have loaded up on their employer’s stock. Not only was the company a long time steady performer, but it provided a generous stock ownership plan, matching 50% of worker contributions.
Still, as we’ve advised before, a good rule of thumb is to hold no more than 10% of your portfolio in the stock of your employer.
I thought about all of this during a recent conversation with a prospective SMI member who mentioned that his retirement portfolio mostly consisted of stock from his former employer. He said he knew what he was doing was probably ill advised, but he explained that the company is in what most would consider a stable industry and the stock is yielding an impressive dividend payout.
It sounds so logical, so reasonable. And yet, as is often the case, the perspective changes when viewed through the lens of Scripture.
But divide your investments among many places, for you do not know what risks might lie ahead. – Ecclesiastes 11:2
Do you own shares of your employer’s stock? If so, what have you done to balance perhaps a good deal you can get on the stock with the need to be adequately diversified?