Nearly a century ago, George Santayana, philosopher and poet, wrote: "Those who cannot remember the past are condemned to repeat it." Sadly, this statement may be proving prophetic when it comes to the amount of company stock that people put into their retirement plans.



Here's one key event in the recent past that people seem not to remember: Enron employees who participated in their 401(k) plan had invested about 58 percent of their 401(k) assets in Enron stock when it lost almost all its value during 2001. But have things changed much since then? Consider this: In plans that allow company stock as an investment option, 46 percent of participants hold more than 20 percent of their account balance in their company stock, and one-sixth hold more than 80 percent of their account in employer stock, according to a study by the Center for Retirement Research at Boston College.

You may like your company, but like all stocks, it is going to rise and fall in value. By putting too much company stock in your 401(k) portfolio, you might be taking on too much risk.



Finding the Right Amount

How much of your 401(k) portfolio should consist of company stock? Many financial experts recommend investing no more than 10 percent of 401(k) plan assets into company stock, but this figure is just a guideline. When determining how much company stock to put in your 401(k), ask yourself a couple of questions:



* How far away am I from retirement?

If you are starting out in your career, you might feel justified in having a larger share of company stock in your 401(k) than if you were planning on retiring in a few years. The more time you have, the better your chances of overcoming the short-term downturns that will affect your company stock. But if you are nearing retirement, and you may soon need to start taking distributions from your 401(k), you might not want to be overweighted with company stock.



* What is the prognosis for my company?

This can be a tough question to answer. If you look back just a few years, most people would probably say that some of the big, well-known companies that are struggling today would always be strong, solid and profitable. And several years from now, perhaps these firms will again be on solid ground - but right now, the picture is not pretty for them. So, as you decide on how much company stock to keep in your 401(k), keep your eyes and ears open on what might be happening in your company and in the industry to which it belongs.



Take the Match

It can be risky to pack your 401(k) with a high percentage of company stock - but if it's offered for free, consider taking it. If your employer offers shares of company stock as a 401(k) matching contribution, put in as much as necessary to earn the match. But after you've received it, see if you can trade in the company shares for other investments within your 401(k).



Diversification is Key

Company stock can have a place in your 401(k) or other retirement plan. But you've also got to leave plenty of room for the other investment accounts inside your 401(k), including accounts that contain stocks, bonds and other securities. In short, diversify your 401(k) today - you'll be glad you did when tomorrow arrives.

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