There are benefits to buying your company’s shares as part of your retirement sa​vings plan. When you invest in the company you work for, you are in a sense leveraging yourself. Your shares will perform well as your company does well and you may feel like you’re playing an active role in increasing your own job security. Your contributions to the company are important. You must be careful, however, that you don’t overestimate the effect your individual contributions will have to the overall bottom line. Though it might feel like a safe option for investing, using this method solely as a retirement savings plan is a risky move.

It’s very clear that if you were fortunate enough to own shares of CNQ* or SU*, you would have done well for yourself. That’s of course assuming that you always held and never sold your shares through the large peak to trough swings in the stock price, something we call Maximum Drawdown. I’ve not encountered one investor who said they had the emotional fortitude to withstand all of their investable assets declining 40 to 50 per cent, and this was the reason to diversify by industry, geography and asset class. 

Beyond this, your job security tends to be modestly correlated to the performance of the company and as that declines, the anxiety of job security starts to increase. Imagine a scenario where you’re working for ERT or ASD Company. As the value of your company shares are falling and your retirement assets are being eroded away you may end up finding yourself unemployed, compounding the situation. This has been a hard reality for many Albertans and a very sad one at that. 

No matter what the economic forecast is, there is no way to comfortably predict how your company is going to do in the future. Even the best economists and the most experienced financial advisors cannot predict the future. It is important that you diversify your assets and set up several opportunities to succeed. Using a variety of investment options will give you more acceptable outcomes and allow you to accomplish your long-term financial goals.

How much should you be putting into your own company’s stock?

Just because solely investing in your own company is risky, doesn’t mean you can’t invest in it responsibly. Often there are big financial benefits that come with investing in the company you work for, like benefit programs that will match the contributions put into retirement savings. This is a fantastic and free opportunity to build wealth. 

The key is to continually balance those assets that you are earning through your company’s stock with your broader, more diverse investment strategy. For example, you can take the proceeds from the sale of company shares and use them towards other investment opportunities in order to build a more diverse investment portfolio. When you work with an ATB Financial Advisor, we can help you by reviewing the proceeds earned and reallocating them to reduce your risk and increase the number of positive outcomes for your future. 

Consider how close you are to retirement.

The amount you should be investing in your company will depend on your age and what life stage you are at. If you are early in your career, you can be more aggressive with your allocation to company shares because you have time on your side. As long as you are saving regularly and accumulating assets, you are on the right track. 

The older you get, the more focused you should be on diversification. You simply do not have the time to recover from a prolonged decline in share value. If you are less than five years away from retirement, you shouldn’t have more than five to ten per cent of your investable assets in any one company. If something bad should happen, it could have an adverse affect on your retirement plans. For example, consider BP’s 2010 Gulf oil spill or the financial crisis of 2008. We saw clients’ investments decline 30 to 40 per cent because they were too concentrated in one company. When this happened, many people had to delay their retirement and patiently wait for their companies shares to recover. 

More recently, we saw a similar thing happen in 2014 in the energy sector when the price of oil collapsed from $100/bbl to $28/bbl. Company stocks declined sharply, jobs were lost and many people were left with minimal assets in their retirement savings plan. Having a diversified portfolio is critical when you are approaching retirement age. To continue to put all your money into one company would be gambling with your retirement dreams and no investor should be that reckless.

Getting help from a Financial Advisor

While investing in the company you own or work for is still a good idea, it’s important that those shares are balanced with a variety of other investments to make up a healthy portfolio. As mentioned before, an ATB Financial Advisor​ will go over all your assets on an annual basis and help you do just that. If your company stock has gone up, we may suggest selling some shares and using the proceeds to invest in a more diversified portfolio. This will make sure you’re on the right path to reaching your financial goals and it will protect you from the risk that comes with ´putting all your eggs in one basket’! 

*The author’s investment firm holds positions in Suncor and Canadian Natural Resources through their Compass^TM Portfolio mutual funds.​