5 Reasons why you shouldn’t invest in your own company

There are multiple reasons why investing your money in the company that sign’s your paychecks is a horrible mistake. Too many people new to investing and their 401k’s dump in huge amounts of their monthly contributions into their company stock. In general, it’s a bad idea to have any more than 5-10% of your money tied up in the company you work for, and here are my top 5 reasons why:

5. You’re emotionally tied to your company; It is more than likely you will place irrational bets on its success as you want to see it succeed badly. Even more, you will probably hold onto the investments longer than you would have otherwise.

4. You’re loyalty to the company is not tied to how much of your money you invest in it. Your main priority should be diversification of your portfolio, not loyalty through investing your earnings with them.

3. Enron. Those people not only lost their job, but many of the people heavily invested in the company stock lost their entire retirements. Don’t think your company is immune to this type of fraud either. Many of you may be unaware of another recent collapse of a financial empire Bear Sterns, fraud played a role in their demise.

2. You probably think you know more about the business than you actually do. Just because you’ve worked there for 5, 10, 20, or even 40 years doesn’t mean you will see what is coming right around the corner, or even understand how outsiders view your company. Unless you are the CFO (Chief financial officer) or an accountant, you better stay away from this type of thinking and leave it to the professionals with deep pockets to toy with.

1. Your company may have restrictions on the money you invested with them. That’s right, they might just decide that you must hold onto their stock that is losing money. Now wouldn’t that suck? Watching your retirement fund deplete in front of your eyes, but your hands are tied because they won’t let you sell. Stay away from this to begin with, and you will never have this problem. Your other stocks and options will likely be much more liquid (easily convertible to cash).

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