Your Vocation as Part of a Diversification Plan

On CNBC, they noted that 1/3 of the stock is held by employees. People who thought that their retirements or college educations were paid for were staring at an incredulously low $2 offer. The stock was trading hopefully north of $ 4 and change.

Your vocation as an asset: It's too easy to overlook your vocation as an income producing asset, but it is. Depending on your level you may have any of these:

• stock options ;
• stock grants;
  
• 401(k) with company stock choice;
• employee stock purchase plan (generally at a discount e.g. 15%);

Each of these benefits are wonderful, but they are not without risks as Enron and BSC and any finanical stock whose stock price has plummeted in price shows.

Stock options are granted at a strike or grant price. They only hold value to the extent that the company's stock value exceeds the grant price. Often options are given as retention tools; accordingly, they vest in future periods and have expiration dates. (Of course, you remember the scandals on stock options where they were post dated and the "grant" price was given at ridiculously low prices.) The stock is granted at a price of X. The future price, at the time you are considering exercising, is Y. If X is less than Y you get the gain of Y-X multiplied among your option pricing. You buy the stock at your option price and then sell it. You could elect to buy the stock at the reduced priced and HOLD it.

Look at healthcare. Look at the financials. I can assure you that there are alot of stock options that were immediately rendered worthless. To the extent that folks were not vested in those options, they never had a choice on whether or not to exercise. But if you had a choice, and elected to not exercise your option, the option is currently worthless. Of course, the stock may come back prior to the option's expiration. But that did not happen at MCI, Enron, and it surely will not happen at BSC.

So whatever your situation consider, if you have these accoutrements, consider how your wealth might be effected in a downturn. I'll tell you flat out, that I had ALL of my 401(k) (I had other retirement accounts) in my employer's stock PURPOSEFULLY. It paid off handsomely when my company was purchased. I discussed the risks with my husband, and we both agreed that the risk reward was acceptable. And if we were wrong, we could recover. But it was a white-hot industry with risks that could quantified.

The point is to make considered judgments about your diversification of lack of diversification risks. You don't want to find yourself in a position of having your stock-centered (therefore valued) benefits become worthless, and your vocation--your job--in jeopardy.

I was fortunate to be a recipient of stock options, and I always agonized whether to take them or not. My financial planner reminded me of diversification. I took my partials, and I never looked back.